<PAGE>
As filed with the Securities and Exchange Commission on March 31, 1999
Registration No. 333-73065
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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
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)
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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. [_]
---------------
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 March 31, 1999.
Shares
NORTHPOINT COMMUNICATIONS HOLDINGS, INC.
Common Stock
------------
This is an initial public offering of shares of common stock of NorthPoint
Communications Holdings, Inc. We currently estimate that the initial public
offering price will be between $ and $ per share. We have applied for
approval for quotation of our common stock on the Nasdaq National Market under
the symbol "NPNT".
See "Risk Factors" on page 7 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.
You should read the entire prospectus, including "Risk Factors" beginning on
page 7, carefully.
OVERVIEW OF OUR BUSINESS
We are a national 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, long-
distance and local telephone companies, and data service providers whom we call
network service providers, or NSPs. Our NSP customers can use our fast, secure
and reliable data networks to provide continuously connected, economical
Internet access and other data-intensive applications to end users. These end
users are typically small- and medium-sized businesses with up to 500
employees, people who work in home offices and telecommuters.
We are currently providing services in 14 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 six former MFS/WorldCom executives.
OUR SOLUTIONS MEET THE GROWING DEMAND FOR DATA TRANSPORT
Data-intensive computing applications such as Internet access are becoming
increasingly commonplace. 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. We believe that local
data transport solutions commonly used by our target end users to connect to
the Internet and for other data applications, such as dial-up modems,
integrated services digital network, or ISDN, lines and T1 service, are
inadequate because they are either too slow or too expensive, or both.
3
<PAGE>
Our local networks provide end users with:
. a range of fast data transport options, each of which has a combination
of price and performance characteristics superior to traditional options;
. the ability to upgrade data transmission speed without adding hardware;
. dedicated and always-on 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 customers:
. access to end users in a wide geographic area through a single point of
interconnection in each market, enabling accelerated market entry with
minimal capital expenditures;
. an electronic interface to our national pre-qualification, order entry,
customer support, provisioning, accounting and billing systems;
. assured data transport speeds and service level guarantees; and
. monitoring of our entire network from our control center.
Our 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 economic return from
our capital expenditures and enable our NSP customers to address a
significant portion of their target end users in each geographic market
quickly. We are currently operational in central offices.
. 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. 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 Uses Capital Efficiently. 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.
. Our Wholesale Model Enables Rapid Utilization of Our Network and
Growth. There are thousands of NSPs who are potential NorthPoint
customers. Many of these NSPs have substantial sales and marketing
organizations. We expect that our NSP customers will be able to sell our
services to more end users than we could on our own, helping us to reach
economies of scale more rapidly.
4
<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 building 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 March 19, 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:
. 12,500,000 shares of common stock reserved for issuance under our stock
option plans, of which 6,887,094 shares were subject to outstanding
options;
. 1,000,000 shares of common stock reserved for issuance under our employee
stock purchase plan; and
. 2,029,426 shares of common stock issuable upon exercise of outstanding
and contingent warrants.
Unless we indicate otherwise, the information in this prospectus assumes the
underwriters will not exercise their over-allotment option.
----------------
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.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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.
Our revenues consist entirely of service revenues because we do not currently
sell end-user modems or other electronic equipment. EBITDA consists of net loss
excluding net interest, taxes, depreciation and amortization. We have provided
EBITDA because it is a measure of financial performance commonly used in the
telecommunications industry, but other companies may calculate it differently
from us. 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.
<TABLE>
<CAPTION>
INCEPTION TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues.............................................. $ -- $ 931
Income (loss) from operations......................... (1,486) (23,541)
Net income (loss)..................................... (1,296) (25,907)
OTHER DATA:
EBITDA................................................ $(1,430) $(21,378)
Capital expenditures.................................. 701 41,550
</TABLE>
The pro forma balance sheet information below reflects the conversion of
convertible debt and preferred equity securities into common stock and the
anticipated closing of our senior secured credit facility and our anticipated
initial drawdown of $55,000,000 under that facility. The pro forma as adjusted
balance sheet information reflects all of these adjustments and the receipt of
estimated net proceeds of $ from this offering.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
------------------------------
PRO PRO FORMA AS
ACTUAL FORMA ADJUSTED
------- -------- ------------
<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>
6
<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. The risks described below are not the only ones that we face.
Additional risks that generally apply to publicly traded companies, that are
not yet identified or that we currently think are immaterial, may also
adversely affect Northpoint.
Because We Have a Limited Operating History, It Is Difficult to Evaluate Our
Business
We were formed in May 1997 and began offering commercial services in the San
Francisco Bay Area in March 1998. 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 the risks, expenses and difficulties we may encounter,
including those frequently encountered by early stage companies in new and
rapidly evolving markets. As a result, we may be unable to:
. develop our operational support systems and other back office systems;
. obtain collocation space in central offices and suitable copper wire
loops;
. expand our customer base;
. raise additional capital;
. maintain adequate operating margins;
. attract and retain qualified personnel;
. enter into and implement interconnection agreements with incumbent local
exchange carriers, or 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 Expect Our Losses and Negative Cash Flow to Continue
To date, we have incurred substantial operating losses, net losses and
negative cash flow on both an annual and quarterly basis. For the year ended
December 31, 1998, we had operating losses of approximately $23,541,000, net
losses of $25,907,000, and negative cash flow from operating and investing
activities of $52,913,000. We cannot assure you that we will ever achieve
profitability or generate positive cash flow.
We expect our operating expenses will increase significantly, especially in
the areas of operations, sales and marketing, as we develop and expand our
business and, as a result, we will need to increase our revenue to become
profitable. If our revenue does not grow as expected or increases in our
expenses are not in line with our plans, there could be a material adverse
effect on our business, prospects, financial condition and results of
operations.
7
<PAGE>
WE CANNOT PREDICT WHETHER WE WILL BE SUCCESSFUL 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 customers and their end users at prices that will yield a profit.
Because our business and the overall market for high speed data communications
services are in the early stages of development, we are unsure whether or when
our DSL services will achieve commercial acceptance.
THE PRICING FOR AND MARKET ACCEPTANCE OF OUR SERVICES ARE UNCERTAIN
Prices for digital communication services have fallen historically, a trend
we expect will continue. Accordingly, we cannot predict to what extent we may
need to reduce our prices to remain competitive or whether we will be able to
sustain future pricing levels as our competitors, including the ILECs,
introduce competing services or similar services at lower prices. Our failure
to achieve or sustain market acceptance at desired pricing levels could impair
our ability to achieve profitability or positive cash flow, which would have a
material adverse effect on our business, prospects, financial condition and
results of operations.
OUR QUARTERLY OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY, CAUSING
OUR STOCK PRICE TO BE VOLATILE OR TO DECLINE
We cannot accurately forecast our revenue because of our limited operating
history and the emerging nature of the data communications industry in our
markets. Our revenue could fall short of our expectations if we experience
delays or cancellations by even a small number of our customers. A number of
factors are likely to cause fluctuations in our operating results, including:
. the rate at which we are able to attract and retain customers, and
whether larger customers fulfill their volume commitments to us;
. the ability of our customers to generate significant end user demand;
. the timing and willingness of ILECs to provide and construct the required
central office collocation facilities;
. the timing and willingness of ILECs to provide suitable copper wire loops
at favorable prices;
. the prices our customers and, in turn, their end users pay for our
services;
. availability of financing to continue to fund our expansion;
. our ability to deploy our services on a timely basis to satisfy end user
demand;
. the mix of line orders between lower margin and higher margin lines;
. the amount and timing of capital expenditures and operating costs as we
expand our network;
. the announcement or introduction of new or enhanced services by our
competitors; and
. technical difficulties or network downtime.
As a result, it is 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.
8
<PAGE>
A Limited Number of Customers Account for a High Percentage of Our Revenue and
the Loss of a Significant Customer Could Harm Our Business
As of , 1999, we were providing or had agreements to provide data
transport solutions to approximately customers. Our two largest customers at
December 31, 1998 accounted for more than 70% 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
customers could have a material adverse effect on our business, prospects,
financial condition and results of operations.
Similarly, if our customers 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.
Many of our agreements with our customers are non-exclusive, and many of our
customers are also customers of, or have invested in, our competitors. To the
extent our significant customers may, in the future, strengthen their
commercial relationships with our competitors, or decide that an investment in
a competitor is more attractive than their investment in NorthPoint, our
business would be materially adversely affected.
We Will Need Significant Additional Funds Beyond 1999, Which We May Be Unable
to Obtain
We believe our current capital resources, together with the proceeds of this
offering, investments from our strategic partners and our anticipated
$100,000,000 senior secured credit facility, will be sufficient for our funding
and working capital requirements and for the deployment and operation of our
networks in targeted markets through the end of 1999. We will need significant
additional funds beyond 1999. We expect that the actual amount and timing of
our future capital requirements will depend upon the demand for our services
and regulatory, technological and competitive developments, including
additional market developments and new opportunities, in our industry. We may
seek additional financing during 1999 if:
. we alter the schedule, targets or scope of our network rollout plan;
. our plans or projections change or prove to be inaccurate;
. we acquire other companies or businesses; or
. market conditions allow us to raise public or privately financed capital
on attractive terms.
We may be unsuccessful in raising sufficient additional capital at all or on
terms that we consider acceptable.
We Will Be Constrained by Covenants
Our debt agreements and other financing agreements contain and will contain
restrictions on our activities and financial covenants with which we will be
required to comply. 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.
In addition, the terms of proposed new indebtedness or other funding may not
be permitted by the terms of our current financing agreements. This 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.
9
<PAGE>
WE NEED TO MAKE CAPITAL EXPENDITURES, AND THE AMOUNTS, TIMING AND RETURNS ARE
UNCERTAIN
In 1999, we will have to make significant capital expenditures estimated at
$90,000,000 to $120,000,000 to develop our business and deploy our services and
systems. The amount and timing of these expenditures are uncertain and will
depend upon our ability to execute our plans in a timely and cost-effective
manner. We will need to increase our revenue in order to earn a return from our
capital expenditures. If our revenue does not grow as expected, or capital
expenditures exceed our estimates, there could be a material adverse effect on
our business, prospects, financial condition and results of operations.
OUR FAILURE TO MANAGE OUR GROWTH EFFECTIVELY COULD IMPAIR OUR BUSINESS
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;
. maintain regulatory compliance;
. implement and significantly expand our financial and operating systems;
. maintain our operations support systems; 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, including continuing developments in DSL technology,
which does not presently have widely accepted standards, and alternative
technologies for providing high speed data communications such as cable modem
technology. As a consequence:
. 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 success will depend on our ability to anticipate or adapt to new
technology on a timely basis; and
. we expect that new products and technologies will emerge that may be
superior to, or may not be compatible with, our products and
technologies.
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 DEPEND ON ILECS FOR COLLOCATION SPACE, WHICH IS CRITICAL TO OUR BUSINESS
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.
10
<PAGE>
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 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.
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 our customers and potential
customers 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 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, Which Are Critical to Our Business
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
ILECs to maintain our service standards. 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 also depend on cooperation from ILECs for
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 ILECs' 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.
Any types of disputes with ILECs over the types and speeds of DSL that we
seek to run over these copper lines, or with respect to billing arrangements
for provisioning or repair of lines, could
11
<PAGE>
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.
OUR SUCCESS DEPENDS ON INTERCONNECTION AGREEMENTS WITH ILECS IN EACH OF OUR
MARKETS
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. 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. 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.
OUR BUSINESS COULD SUFFER IF HIGH QUALITY LINES ARE NOT AVAILABLE OR COST US
MORE THAN WE EXPECT
We are dependent on the quality of the 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 quality levels,
prices, terms and conditions satisfactory to us. Our failure to do so would
have a material adverse effect on our business, prospects, financial condition
and results of operations.
The rate approval processes for DSL-capable lines involve a lengthy review of
the ILEC-proposed rates by the applicable state regulator or, in the future, by
the FCC. 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.
WE DEPEND ON MARKET ACCEPTANCE 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 we offer
services to a 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. 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. 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 OUR BILLING, CUSTOMER SERVICE AND INFORMATION SUPPORT SYSTEMS,
WHICH NEED FURTHER DEVELOPMENT
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 operations support systems 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 identify all of our information and
processing needs or implement these systems on a timely basis or at all, and
these systems may not perform as expected.
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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 operations support systems and other
back office systems of our customers, and to the interface between our systems
and those of our customers. Therefore, failures at our customers could also
have a material adverse effect on our business, prospects, financial condition
and results of operations.
IF WE DO NOT ADEQUATELY ADDRESS YEAR 2000 ISSUES, WE MAY INCUR SIGNIFICANT
COSTS AND OUR BUSINESS COULD SUFFER
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. 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" at
page 34.
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, the actual data transmission speeds over our network could
be significantly slower due to:
. 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.
For example, we are not certain whether we can successfully deploy higher DSL
speeds through digital loop carrier systems which, because they connect copper
lines to a fiber link, currently limit DSL service to a maximum speed of 144
kilobits per second.
Because we rely on ILECs to overcome technical limitations associated with
loop carrier systems, we cannot assure you that we will be able to successfully
deploy high speed DSL service to all areas in our markets. 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.
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Our Success Depends on Our Retention of Executive Officers and Other Key
Personnel and Our Ability to Hire Additional Key Personnel
We are managed by a small number of executive officers. Competition for
qualified executives 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 executive
officers, so any of these individuals may terminate his or her employment with
us at any time. We do not have "key person" life insurance policies on any of
our executive officers. The loss 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
retain and attract qualified technical, marketing, managerial and other
personnel. Additionally, we believe an effective sales force is critical to our
success. 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 personnel would have a material adverse effect on our
business, prospects, financial condition and results of operations.
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, cable modem service providers, Internet service providers, on-line
service providers, and wireless and satellite data service providers.
Other Competitive Local Exchange Carriers, Some with Greater Financial
Resources, Compete in the Same Markets for the Same Customers. 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 Covad Communications Group, Inc., Rhythms
NetConnections 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. As a result, our
customers may contract with other CLECs, which may decrease our customers'
demand for our services.
Incumbent Local Exchange Carriers With Greater Resources Than Ours May
Directly Compete in Our Markets. 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 Internet service provider 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
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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 MAY BEGIN TO COMPETE FOR OUR SMALL- AND
MEDIUM-SIZED BUSINESS CUSTOMERS. Many of the leading traditional national long
distance carriers, 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 which
they could begin to offer competitive DSL services. The newer national long
distance carriers, 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 Internet service providers 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 MAY OFFER HIGH SPEED INTERNET ACCESS AT MORE
COMPETITIVE RATES THAN OURS, FORCING US TO LOWER OUR PRICES. Cable modem
service providers, 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 cable
modem service provider 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, OUR TARGETED CUSTOMERS, MAY BEGIN TO PROVIDE DSL
SERVICES DIRECTLY. Internet service providers, 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 telephone system at integrated services
digital network, or ISDN, speeds or below. Some regional Internet service
providers, such as HarvardNet Inc., InterAccess Co., Vitts Networks Inc. and
Prism Solutions, Inc., have begun offering DSL-based services. Internet service
providers could become competing DSL service providers if they attain CLEC
certification in the states in which they planned to operate.
ON-LINE SERVICE PROVIDERS, OUR TARGETED CUSTOMERS, MAY BEGIN TO PROVIDE DSL
SERVICES DIRECTLY. On-line service providers, 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, on-line service providers provide Internet
connectivity, ease-of-use and consistency of environment. Many of these on-line
service providers have developed their own access networks for modem
connections. AOL has announced
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that it will purchase DSL services from Bell Atlantic. If these on-line service
providers were to extend their owned access networks to DSL, they would be our
competitors.
WIRELESS AND SATELLITE DATA SERVICE PROVIDERS MAY BEGIN TO OFFER WIRELESS AND
SATELLITE-BASED INTERNET CONNECTIVITY, ALSO COMPETING AGAINST US. Wireless and
satellite data service providers are developing wireless and satellite-based
internet connectivity. We may face competition from terrestrial wireless
services, including multi-channel multipoint distribution system, local
multipoint distribution system, wireless communication service and point-to-
point microwave systems. The FCC is currently considering new rules to permit
multi-channel multipoint distribution system 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 local multipoint
distribution system 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.
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 local area networks, 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.
INDUSTRY CONSOLIDATION COULD MAKE COMPETING MORE DIFFICULT
Consolidation of companies offering high speed local data transport is
occurring through acquisitions, joint ventures and licensing arrangements
involving our competitors and our customers' competitors. As a company with
limited operating history, 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 customers' marketing channels to provide
our services to business and residential end users, if our customers are
adversely affected by consolidation among and integration in the market, our
business, prospects, financial condition and results of operations could be
materially adversely affected.
OUR SERVICES ARE SUBJECT TO UNCERTAIN 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. With the passage of the Telecommunications Act in
1996, Congress sought to foster competition in the telecommunications industry
and to promote the deployment of advanced telecommunications technology.
Implementation of the Telecommunications Act is the subject of ongoing
administrative
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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
or to what extent these proceedings, litigation and legislation may adversely
affect our business and operations.
As a CLEC, we are subject to FCC regulation for our contractual, or
interconnection, arrangements with the ILECs in our markets, but the scope of
this regulation is uncertain because it is the subject of ongoing court and
administrative proceedings. Several parties have brought court challenges to
the FCC's interconnection rules, including the rules that establish the terms
under which a CLEC may use portions of an ILEC's network. Although the Supreme
Court recently held that the FCC has the authority to adopt interconnection
rules and specifically upheld several of these rules, other rules are still
being considered by the courts. If a rule that is beneficial to our business is
struck down, it could harm our ability to compete. In particular, the courts
have not yet resolved the lawfulness of the methodology that the FCC
established to determine the price that CLECs would have to pay ILECs for use
of the ILECs' networks. The courts may determine that the FCC's pricing rules
are unlawful, which would require the FCC to establish a new pricing
methodology. If this occurs, the new pricing methodology that the FCC adopts
may resulting in our having to pay a higher price to ILECs if we were to use a
portion of their networks in providing our services, and this could have a
detrimental effect on our business.
Although the Supreme Court upheld most of the FCC's rules that the Court
reviewed, it struck down the rule specifying the various portions of the ILECs'
networks that the ILECs were required to make available to CLECs. As a result,
the FCC will have to develop a new standard for determining which portions of
the ILECs' networks must be made available to CLECs. This new standard may
reduce the number of network components to which CLECs will have access. If
this occurs, this may harm our ability to compete.
Recently, various ILECs have requested the FCC grant them regulatory relief
in the provision of data transmission services, including DSL services, which
would allow the ILECs to compete more directly with DSL providers such as
Northpoint. In response, 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. This issue is
still pending before the FCC, and we cannot be certain that the FCC will not
reconsider its decision or adopt new rules on this issue that would harm our
competitive position in the market. Additionally, since the FCC issued its
decision, various ILECs have again asked the FCC for regulatory relief with
respect to their provision of data transmission services. The FCC has not yet
resolved these later requests. We would expect that an FCC decision in favor of
the ILECs could have a material adverse effect on our business, prospects,
financial condition and results of operations.
OUR DEBT CREATES FINANCIAL AND OPERATING RISK THAT COULD LIMIT THE GROWTH OF
OUR BUSINESS
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" at page 23. 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 approximately $ in stockholder's equity 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;
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. 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 from time to time be more highly leveraged than many of our
competitors, which may place us at a competitive disadvantage.
A System Failure or Breach of Network Security Could Delay or Interrupt Service
to Our Customers
The reliability of our transmission services in our markets would be impaired
by a
natural disaster or other unanticipated interruption of service or damage at
any of our facilities. 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. 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.
Our network may be vulnerable to unauthorized access, computer viruses and
other disruptive problems. 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 of or interruption from our equipment suppliers, such as Copper
Mountain Network, Inc., from which we purchase most of our digital subscriber
line access equipment, or interruption in service from any significant
installer or field service provider, such as Lucent Technologies, Inc., which
has installed and maintained our equipment in all of our markets, could have a
disruptive effect on our business, prospects, financial condition and results
of operations.
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. It could take a
significant period of time to establish
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relationships with alternative suppliers for each of our technologies and
substitute their technologies into our network.
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, 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.
Claims of Interference Could Harm Our Ability to Deploy Our Services
Certain technical laboratory tests and field experience indicate that some
types of DSL, in particular, asymmetrical DSL--in which data transport to the
end user is faster than transport from the end user--may cause interference
with and be interfered with by other signals present in an ILEC's copper plant.
Citing this potential interference, some ILECs have imposed restrictions on the
use of asymmetrical DSL technology over their copper lines. However, we do not
believe that our symmetrical DSL technology equipment, which permits the same
speed of data transport to and from the end user, poses interference risks.
However, if ILECs restrict our use of our technology or equipment in the
future, our business, prospects, financial condition and results of operations
could be materially adversely affected.
Our Stock Price May Be Volatile
An active trading market for our common stock may not develop or be sustained
after this offering. NorthPoint and the underwriters will determine the initial
public offering price. The price at which our common stock will trade after
this offering is likely to be volatile and may fluctuate substantially due to
factors such as:
. 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; and
. conditions and trends in the data communications and Internet-related
industries.
In particular, the stock market has from time to time experienced significant
price and volume fluctuations affecting the common stocks of technology
companies, which may include data communications and Internet-related
companies. These fluctuations may result in a material decline in the market
price of our common stock.
The Sale of Shares Eligible for Future Sale Could Depress Our Stock Price
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
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shares held at any time by an "affiliate" of NorthPoint, as defined under
Rule 144 under the Securities Act. Of the remaining shares, 45,605,256 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 12,500,000 shares of common stock that
are reserved for issuance under our stock option plans, including shares
currently subject to outstanding options, and the 1,000,000 shares reserved for
issuance under our employee stock purchase plan. We expect the registration
statements on Form S-8 to become effective immediately upon filing. Options to
purchase 1,603,436 shares of common stock either are vested or vest within 60
days of March 19, 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" on page 51.
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 dilution in net tangible book value of $ per share,
assuming an initial public offering price of $ per share. 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" on page 25 for more
information.
Our Principal Stockholders and Management Own a Significant Percentage of
NorthPoint, and Will Be Able to Exercise Significant Influence
Our executive officers and directors and principal stockholders together will
beneficially own % of our common stock after completion of this offering, or
% if the over-allotment option is exercised in full. These stockholders, if
they vote together, will be able to exercise significant influence over all
matters requiring stockholder approval, including the election of directors and
approval of significant corporate transactions. This concentration of ownership
may also delay or prevent a change in control of NorthPoint. See "Principal
Stockholders" on page 60 for information about the ownership of common stock by
our executive officers, directors and principal stockholders.
Our Certificate of Incorporation and Bylaws Contain Provisions That Could Delay
or Prevent a Change In Control of NorthPoint
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. Our certificate of
incorporation allows 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" on page 64 for more
information.
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FORWARD-LOOKING STATEMENTS ARE INHERENTLY UNCERTAIN
Certain statements under the captions "Prospectus Summary," "Risk Factors,"
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business," and elsewhere in this prospectus are
"forward-looking statements." These forward-looking statements include, but are
not limited to, statements about our plans, objectives, expectations,
intentions and assumptions and other statements contained in the prospectus
that are not historical facts. When used in this prospectus, the words "expect"
"anticipate," "intend," "plan," "believe," "seek," "estimate" and similar
expressions are generally intended to identify forward-looking statements.
Because these forward-looking statements involve risks and uncertainties,
including those described in this "Risk Factors" section, actual results may
differ materially from those expressed or implied by these forward-looking
statements. 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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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 more than $100,000,000 of the net proceeds from this
offering to continue building our networks, and the remainder 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. Certain covenants
in our financing agreements will prohibit or limit our ability to declare or
pay cash dividends.
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CAPITALIZATION
The following table sets forth:
(A) Our capitalization as of December 31, 1998.
(B) Our pro forma capitalization after giving effect to:
. the issuance of preferred stock in February 1999;
. the issuance to a strategic investor of subordinated debt convertible
into common stock; and
. a stock split of certain shares of preferred stock.
(C) Our pro forma capitalization after also giving effect to:
. the automatic conversion of the outstanding convertible preferred
stock and convertible subordinated debt upon the closing of this
offering; 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.
(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>
23
<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 6,887,094 total shares of common stock issuable upon exercise of
outstanding options under our stock option plans as of March 19, 1999;
1,000,000 shares of common stock reserved for issuance under our 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 our bridge loan.
24
<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
March 19, 1999, there were options and warrants outstanding to purchase
8,916,520 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.
25
<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.
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 under the facility.
In addition to the foregoing, 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.
<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>
26
<PAGE>
<TABLE>
<CAPTION>
As of December 31, 1998
----------------------------
Pro Pro Forma
Actual Forma as Adjusted
------- ------- -----------
<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.
(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.
27
<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 space in central offices;
. raising capital, hiring management and other key personnel;
. working on the design and development of our network architecture and
operations support systems;
. 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 13 additional markets, including the
greater Los Angeles area, Boston, New York, Chicago, San Diego, Washington,
D.C., Dallas, Detroit, Houston, Cleveland, Austin, Atlanta and Baltimore. We
intend to offer our services in 14 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
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 -- a facility where we collect
data in each metropolitan area -- 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; and
. the purchase and installation of the 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;
28
<PAGE>
. 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 metropolitan 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.
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 service to $250 per month for 1.5 megabits per second
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 transport and loop
installation 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
29
<PAGE>
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:
. depreciation of network infrastructure equipment;
. depreciation of information systems, furniture and fixtures;
.amortization of improvements to central offices, network control center
facilities and corporate facilities;
.amortization of central office space and improvements; and
.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 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 in 1998 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.
30
<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......... 511 863 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 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. Although we have no material
commitments for capital expenditures during 1999, 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 make additional capital expenditures in 1999 estimated at $90,000,000
to $120,000,000 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 also incur capital
expenditures for building a metropolitan node in each market and for expanding
our network control center in San Francisco.
31
<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.
Our working capital deficiency as of December 31, 1998 was $51,718,122. Of
this amount, $49,606,458 consisted of a line of credit borrowing from Morgan
Stanley Bridge Loan Fund, L.L.C. ("MSBLF"). We intend to repay our borrowing
under this line of credit in full in early April 1999 with the proceeds from
the initial drawdown on our anticipated $100,000,000 senior secured credit
facility. We believe that our current capital resources, together with the
proceeds from this offering, investments from our strategic partners and our
anticipated $100,000,000 senior secured credit facility, will be sufficient for
our funding and working capital requirements and for the deployment and
operation of our networks in targeted markets through the end of 1999. We do
not expect our current working capital deficiency to have any material effect
on our business.
In July 1998, we entered into a bridge loan agreement with MSBLF under which
MSBLF agreed to provide up to $50,000,000 of senior increasing rate notes. The
MSBLF bridge loan allows us to draw funds and issue notes on an as needed
basis. The bridge loan matures on July 15, 1999 and currently bears interest at
10% per year. MSBLF received fees consisting of cash and warrants. Under the
bridge loan agreement, we issued warrants to purchase 1,000,000 shares of
common stock to MSBLF. In addition, we are obligated to issue warrants to MSBLF
to purchase up to an additional 600,000 shares from time to time:
. as funds are drawn and notes are issued under the bridge loan; and
. if any note remains outstanding under the bridge loan for at least three
months.
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. 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, we expect that MSBLF will own
warrants to purchase 1,300,000 shares of common stock. For more information
about the terms of the bridge warrants, see "Description of Capital Stock--
Bridge Warrants. "
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.
32
<PAGE>
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 senior
secured credit facility consisting of:
. a $50,000,000 senior secured term loan facility, which will be available
in a single draw-down on the closing date; and
. a $50,000,000 senior secured revolving credit facility that will convert
into a senior secured term loan within six months.
The senior secured credit facility will mature on the fifth anniversary of its
closing date. All amounts outstanding under the senior secured credit facility
will bear interest, in the absence of an event of default, at our option at:
. the LIBOR rate plus eight percent per year; or
. the greater of the prime rate or the federal funds rate as announced by
The Wall Street Journal plus seven and one-half percent per year.
Borrowings under the senior secured credit facility are restricted based upon
our leverage ratio and the value of our telecommunications assets from time to
time. 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 building our networks;
. to repay the MBLSF bridge loan and other indebtedness;
. to fund working capital; and
. for general corporate purposes.
We expect to pledge to the lenders under the senior secured credit facility all
of 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 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.
As of December 31, 1998, we had not entered into any financial instruments
that expose us to material market risk.
33
<PAGE>
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 traditional telephone systems 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 who operate
these traditional telephone systems 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 enterprise application systems, including
internally-developed and vendor-developed applications and off-the-shelf
software and hardware relating to our internal information systems, and believe
that such 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 systems were implemented within
the last two years, we do not anticipate significant year 2000 issues to arise,
although we cannot be certain about this.
In the provision of our DSL services, we use third party equipment and
software and interact with ILECs that have equipment and software that may not
be year 2000 compliant. We have requested assurances regarding year 2000
compliance from our equipment and software vendors and the ILECs. We currently
have received assurances from most of our vendors and anticipate receiving
assurances soon from the remaining vendors. We have not received similar
assurances from the ILECs and do not anticipate that we will be able to do so.
We plan to test our system interfaces with at least one ILEC if we are able to
obtain ILEC cooperation. However, failure of our third-party or ILEC software
and equipment to be year 2000 compliant could cause us to incur significant
expense in correcting any problems that arise, impacting our business,
prospects, operating results and financial condition.
We have requested information from our business partners regarding their year
2000 preparedness, but have not been assured that all of their systems are year
2000 compliant. We plan to test and validate our system interfaces with
partners and to develop a contingency plan prior to the end of the third
quarter of 1999. However, if our partners' systems are not year 2000 compliant,
our business, prospects, operating results and financial condition could be
adversely affected.
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 systems.
Our aggregate historical and future costs for year 2000 analysis, planning
and remediation have not been material to date and we do not expect them to be
material in the future. However, we cannot assure that these costs will not be
greater than we currently expect. If these costs increase significantly, our
business, prospects, operating results and financial condition could be
adversely affected. Our complete internal review of and planning for year 2000
issues is anticipated to be completed by November 1, 1999.
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
34
<PAGE>
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.
35
<PAGE>
BUSINESS
HISTORY
NorthPoint was founded in May 1997 by six 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. We have expanded our
management team by adding, among others, Elizabeth Fetter as our President and
Chief Operating Officer. Ms. Fetter was previously the Vice President and
General Manager of the Consumer Services Group at U S West. In addition, a
former Chairman of the Federal Communications Commission is a member of our
board of directors.
INDUSTRY OVERVIEW
Data communications is the fastest growing segment of the telecommunications
industry. People working in home offices and telecommuters are increasingly
demanding high-speed data connections for applications such as Internet access,
intranets, extranets, telecommuting, e-commerce, e-mail, video conferencing and
multimedia.
The number of Internet users worldwide has increased substantially over the
last several years, reaching 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 with up to 500 employees. 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. 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 39.2 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 through
the traditional telephone system, using relatively slow 28.8 to 56 kilobits per
second dial-up modems or integrated services digital network, or ISDN, lines.
For higher speed connections, these end users have had to purchase T1 service,
a digital transmission link which is fast (up to 1.544 megabits per second) and
always-on, but expensive (typically $300 to $1000 per month depending upon
distance and region).
36
<PAGE>
Neither the slow dial-up modems and ISDN service 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, since when using a T1 service,
the cost is high, and when using a dial-up modem or ISDN service, the speed of
data transmission is slow.
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
line, allowing data transmission to bypass the components of the traditional
telephone system 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 a combination of price and performance that is superior to
traditional options.
. Scaleable Services. End users can 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 to ensure reliable performance.
. Secure Transport of Sensitive Business Data. We offer our services over
dedicated copper telephone lines.
Our networks and services offer a number of advantages to our NSP customers
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.
. Electronic Connections to Our National Operations 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 Transmission Speeds and Service Quality. We guarantee
data throughput at consistent high speeds on our networks.
. Continuously Monitored Networks. We have remote monitoring capabilities
and continuously monitor the entire network from our network control
center. We use three methods to monitor our networks so that we can
continue to monitor the networks even if one or two methods fail.
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<PAGE>
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 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 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 an 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 14 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;
. 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.
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<PAGE>
. Exploit Our Scaleable Systems. Our operations support systems have been
designed to take advantage of efficiencies in our digital networks and
can grow with our business. We believe that these systems, including our
electronic connections 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 notify NSPs 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 with others. We believe that these relationships
are valuable because they provide additional technical, marketing and
distribution expertise and capital and, in some cases, involve guaranteed
or targeted numbers of new end-user lines.
. 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 14 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*
Portland Chicago* Baltimore*
Sacramento Cleveland* Boston*
San Diego* Columbus Miami/Fort Lauderdale
San Francisco Bay Area(2)* Dallas* New York(3)*
Seattle Denver Orlando
Detroit* Philadelphia
Houston* Raleigh-Durham
Minneapolis Tampa-St. Petersburg
Pittsburgh Washington, D.C. area (4)*
San Antonio
St. Louis
</TABLE>
- --------
(1) Includes Orange County.
(2) Includes San Francisco, Oakland and San Jose.
(3) Includes northern New Jersey.
(4) Includes northern Virginia and parts of Maryland.
* current markets
39
<PAGE>
Network Architecture
We establish each of our regional networks by installing digital
communications equipment in the ILEC central offices with the highest density
of small- and medium-sized businesses. DSL technology provides for high speed
transmission of information over existing copper telephone lines by encoding
the information in a digital format. Our equipment uses this technology to
transmit high speed data over copper lines between the central office and the
end user. In turn, we connect our equipment in each central office to our
metropolitan node, a facility where data is collected in each metropolitan
area. Our NSP customers in each metropolitan area are connected, typically by
leased fiber optic lines, to the metropolitan node. For our NSP customers,
having this 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 telephone 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 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. Data traffic
is aggregated from various central offices at the metropolitan node and then
transported to the NSPs over leased fiber optic lines. Our systems allow data
transmission to bypass the components of the traditional telephone system that
are responsible for creating inefficient data transmission. Therefore, while
using the existing copper telephone wires from each end user to the central
office, we are able to offer high speed data transmission.
Central Office Installation. We contract with Lucent on a per-order basis 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.
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<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 current 14 markets. We intend to increase the size
of our sales and marketing staff as we enter an additional 14 markets by year-
end.
[GRAPHIC OF SYMMETRICAL PRODUCT OFFERINGS]
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<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 data services
with better price and 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. Some of our higher speed services may be unavailable to
certain end users whose premises are too far from a central office. The column
marked "Maximum Range (feet)" in the following table means the estimated
maximum distance between a central office and the end user for each of our
services.
<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, e-
commerce, e-mail, video conferencing and multimedia.
Performance Upgrades. We can remotely increase an end user's speed from 160
kilobits per second through 1.54 megabits per second without upgrading the
equipment located at the end user's premises. 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.
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<PAGE>
The Value Proposition to NSPs. In addition to providing reliable, high
quality data network services, we 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. 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. We serve as a single-source provider to our NSP
customers. Because we maintain the physical connection with the ILEC 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 ILECs, inside wiring companies
or equipment maintenance and monitoring service providers.
. Avoidance of Regulatory Burden. To provide DSL service on its own, an
Internet service provider or other data service provider would have to be
authorized as a CLEC in each state in which it 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 is not billed by the ILEC or NorthPoint.
. Electronic Interfaces. We have designed our national operations support
systems to interface directly with NSPs' existing provisioning,
management, accounting and billing systems. This 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 and performance
options enables NSPs to match their service offerings with an end user's
specific need for data transmission capacity. Current options available
from ILECs 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 operations support systems track end user
usage and identify opportunities on a timely basis for the NSP to
recommend service upgrades to its end users.
. Reliability and Guaranteed Data Transmission Speeds. We design our
networks for business-quality service, including 24 hours a day, 7 days a
week monitoring, network management links, guaranteed data throughput and
consistent high speed transmission.
. 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.
43
<PAGE>
OPERATIONS SUPPORT SYSTEMS
Our operations support systems are designed to grow with our business and
provide 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 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 connections
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 NSP's 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
lines to 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 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 with others. We believe that
these relationships are valuable because they provide additional technical,
marketing and distribution expertise and capital and, in some cases, involve
guaranteed or targeted numbers of new end-user lines.
@WORK. We have entered into a 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
44
<PAGE>
our current and future markets and meet targeted volume commitment levels.
@Work offers businesses high speed data services. @Work committed to purchase
lines over the initial two-year term of the agreement. In July 1998, @Home
purchased 566,855 shares of our Series C preferred stock for $3.53 per share.
Upon the completion of this offering, the Series C preferred stock will
automatically convert into common stock on a one-for-one basis. Following the
offering, @Home will own approximately % of our outstanding common stock.
INTEL. We have entered into a strategic relationship with Intel, a company
that designs, develops, manufactures and markets computer components and
related products at various levels of integration. Intel is also one of the
supporters of the G.lite specification for a consumer version of DSL. We are
working with Intel to enhance our service offerings. In August 1998, Intel
purchased 566,855 shares of our Series C preferred stock for $3.53 per share
and acquired contingent warrants to purchase 94,475 shares of our common stock
at the same price per share. The contingent warrants become exercisable by
Intel on or after September 30, 1999 provided that, by that date, Intel has
placed good faith purchase orders for our DSL services in two markets, or we
have not used our best efforts to launch our services in those two markets.
Upon the completion of this offering, the Series C preferred stock will
automatically convert into common stock on a one-for-one basis. Following the
offering, Intel will own approximately % of our outstanding common stock.
VERIO. In February 1999, we entered into a DSL joint marketing development
agreement with Verio Inc. that was amended in March 1999. Verio is a national
Internet service provider. Under the agreement, Verio designated NorthPoint as
its preferred provider in 21 of our 28 markets. Verio also committed to
purchase lines over the two-year term of the agreement. In connection with this
agreement, Verio invested in a $5,600,000 subordinated convertible promissory
note of NorthPoint. Based upon an assumed initial public offering price of $ ,
this note will convert automatically into shares of our common stock upon
the completion of this offering. Following the offering, Verio will own
approximately % of our outstanding common stock.
ALTERNATIVE DATA TRANSPORT TECHNOLOGIES
We believe that our DSL-enabled networks offer price and 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 traditional telephone
system, and are the most commonly used data transport technology today.
Because the electronic components of the traditional telephone system
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 traditional telephone
system 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.
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<PAGE>
. 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.
. 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.
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."
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.
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<PAGE>
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:
. 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;
. unbundle components of their local service networks so that other
providers of local service can compete for a wide range of local services
customers;
. establish "wholesale" rates for their services to promote resale by CLECs
and other competitors;
. 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;
. establish dialing parity, which ensures that customers will not detect a
quality difference in dialing telephone numbers or accessing operators or
emergency services; and
. 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
47
<PAGE>
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. 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
regional Bell operating companies 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 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 regional Bell operating companies 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 regional Bell operating
companies relief in local access and transport areas for the provision of data
services. A decision by the FCC on these issues is expected shortly. In
addition, three regional Bell operating companies 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,
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<PAGE>
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 are
subject to municipal franchise requirements requiring us to pay license or
franchise fees either on a percentage of gross revenue, flat fee or other
basis. The Telecommunications Act requires municipalities to charge
nondiscriminatory fees to all 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.
CUSTOMERS
In 1998, our two largest customers were Concentric and Flashcom. See Note 2
to our consolidated financial statements. A loss of or decrease in business
from any major customer could have a material adverse effect on our business,
prospects, financial condition and results of operations. For more information,
see "Risk Factors--A Limited Number of Customers Account for a High Percentage
of Our Revenue and the Loss of a Significant Customer Could Harm Our Business."
EMPLOYEES
As of March 26, 1999, NorthPoint had 369 employees (including 20 temporary
personnel and consultants), employed in engineering, sales, marketing, customer
support and related activities, and general and administrative functions. None
of our employees is 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 Executive Officers and Other 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.
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<PAGE>
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.
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MANAGEMENT
Executive Officers and Directors
Our executive officers and directors, and their ages as of March 19, 1999,
are as follows:
<TABLE>
<CAPTION>
Name Age Positions
---- --- ---------
<C> <C> <S>
Michael W. Malaga................ 34 Chief Executive Officer and Chairman
of the Board of Directors
Elizabeth A. Fetter.............. 40 President and Chief Operating Officer
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 Chief Executive Officer and
Chairman of NorthPoint since June 1997. Mr. Malaga was also the President of
NorthPoint from June 1997 to March 1999. 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.
Elizabeth A. Fetter has been the President and Chief Operating Officer of
NorthPoint since March 1999. From January 1998 until joining NorthPoint, Ms.
Fetter was Vice President and General Manager of the Consumer Services Group at
U S West where she was responsible for a $4.7 billion dollar business serving
over 11 million customers with integrated wireline, wireless and data services.
In 1997, Ms. Fetter served as Vice President and General Manager of Operator
and Directory Services for SBC Communications Inc. From March 1991 to April
1997, Ms. Fetter held various executive positions in strategy, finance, sales,
marketing and general management at Pacific Bell,
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<PAGE>
most recently as President of the Industry Markets Group, where she was
responsible for the Company's wholesale, interconnection and resale businesses.
Ms. Fetter worked in international management consulting and at Chevron
Corporation prior to March 1991.
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.
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.
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<PAGE>
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
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.
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<PAGE>
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.
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
Our certificate of incorporation divides our directors into three classes.
Three Class I Directors hold office initially for a term expiring at the annual
meeting of stockholders in 2000. Two Class II Directors hold office initially
for a term expiring at the annual meeting of stockholders in 2001. Two Class
III Directors hold office initially for a term expiring at the annual meeting
of stockholders in 2002. The members of each class 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.
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<PAGE>
Committees of the Board of Directors
In March 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. The audit committee recommends
engagement of NorthPoint's independent auditors, 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."
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"). The column marked
"All Other Compensation" consists of relocation expenses for which we
reimbursed Mr. Bluestein.
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
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 $12,485 -- --
Vice President, Engineering
and Program
Management
</TABLE>
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<PAGE>
Option Grants and Exercises
The following table provides information concerning grants of options to
purchase our common stock made during the fiscal year ended December 31, 1998
to the Named Executive Officers. In the column marked "Potential Realizable
Value At Assumed Annual Rates of Stock Price Appreciation For Option Term,"
potential gains are net of exercise price, but before taxes associated with
exercise. These amounts represent certain assumed rates of appreciation only,
based on the SEC rules. Actual gains if any, on stock option exercises are
dependent on the future performance of the common stock, overall market
conditions and the option-holders' continued employment through the vesting
period. The amounts reflected in this table may not necessarily be achieved.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
% of Total Value At Assumed
Options Annual Rates of Stock
Granted To Exercise Price Appreciation
Options Employees or Base For Option Term
Granted In Fiscal Price Expiration ---------------------
Name (#) Year ($/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>
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. The fair value of the unexercised in-the-money options was determined
by our management to be $3.18 per share at December 31, 1998, less the exercise
price of such options. The option exercise prices were set by our board of
directors and reflect its best estimate of the fair value of our stock on the
date of each grant.
AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised Options In-The-Money Options at
Held at December 31, 1998 December 31, 1998
--------------------------------- ---------------------------------
Name Exercisable (#) Unexercisable (#) Exercisable ($) Unexercisable ($)
---- --------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Michael W. Malaga....... -- -- -- --
Herman W. Bluestein..... -- 350,000 -- $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>
1997 Stock Option Plan
Our 1997 Stock Option 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
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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 plan is currently being administered by the
compensation committee of 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.
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. In March 1999, NorthPoint Communications Holdings assumed all of the
options then outstanding under the 1997 Stock Option Plan.
1999 Stock Plan
NorthPoint's 1999 Stock Plan was adopted by the board of directors in March
1999 and approved by our stockholders in 1999. A total of 5,000,000
shares of common stock has been reserved for issuance under the 1999 Stock
Plan. As of the date of this prospectus, no options have been issued under the
1999 Stock Plan.
The 1999 Stock Plan provides for grants of ISOs to employees, consultants and
members of NorthPoint's board of directors, and for grants of NSOs and stock
purchase rights to employees (including officers and employee directors) and
consultants (including non-employee directors) of NorthPoint.
The 1999 Stock Plan is administered by the compensation committee or another
committee of the board of directors. The 1999 Stock Plan is currently being
administered by the compensation committee. The administrator of the 1999 Stock
Plan may determine the terms of the options and
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<PAGE>
stock purchase rights granted, including the exercise price, the number of
shares subject to each option and/or stock purchase right and the
exercisability of the option and/or stock purchase right. The administrator of
the 1999 Stock Plan also has the full power to select the individuals to whom
options and/or stock purchase rights will be granted, to make any combination
of grants to any participants and to determine whether stock acquired pursuant
to a stock purchase right is to be subject to repurchase by NorthPoint.
Options generally have a term of ten years. Options granted to employees vest
at a rate of no less than 20% per year over five years from the date the option
is granted. Options granted to independent directors vest over three years at
the rate of 1/36th on each monthly anniversary of the vesting commencement
date. Subsequent grants of options to outside directors vest over three years,
starting at the beginning of the third year anniversary at the rate of 1/12th
on each monthly anniversary of the vesting commencement date. Stock purchase
rights may be subject to repurchase options that lapse at a rate of no less
than 20% per year over five years from the date of purchase.
Option exercise prices may not be less than 100% of the fair market value of
the common stock on the date of the grant; however, NSOs may be granted at
exercise prices of not less than 85% of the fair market value of 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.
Option terms are determined by the option agreements; however, no option may
have a term longer than ten years. 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 NorthPoint stock. 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, the
administrator may provide for the repurchase, replacement or termination of
options or stock purchase rights. The administrator also has the discretion to
accelerate the vesting of options or stock purchase rights to make them
exercisable as to some or all of the underlying shares.
1999 Employee Stock Purchase Plan
NorthPoint's 1999 Employee Stock Purchase Plan was adopted by the board of
directors in March 1999 and approved by the stockholders in 1999. A
total of 1,000,000 shares of common stock has been reserved for issuance under
the purchase plan. As of the date of this prospectus, no shares have been
issued under the purchase plan.
The 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 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 of our employee stock
purchase plans accrues at a rate which exceed $25,000 worth of
58
<PAGE>
stock for each calendar year. The purchase plan permits participants to
purchase common stock through payroll deductions of up to 10% 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 2000 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 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 purchase plan are not transferable
by a participant other than by will, the laws of descent and distribution, or
as otherwise provided under the purchase plan. The 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.
The board of directors has the authority to amend or terminate the purchase
plan. However, no such action by the board of directors may adversely affect
any outstanding rights to purchase stock under the purchase plan, except that
the board of directors may terminate an offering period on any exercise date if
the board of directors determines that the termination of the 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 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
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Our bylaws provide that we shall
indemnify each of our 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 our request. We have also entered into agreements
to indemnify directors and our executive officers.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of March 19, 1999 with
respect to the beneficial ownership of our common stock, 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 March
19, 1999 as described in the footnotes below. Percentage of ownership is
calculated pursuant to SEC Rule 13d-3(d)(1). Percentage ownership calculations
before and after the offering are based on 45,622,239 shares and
shares, respectively, of common stock outstanding. 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 BEFORE AFTER
BENEFICIALLY THE THE
NAME OWNED OFFERING OFFERING
- ---- ------------ -------- --------
<S> <C> <C> <C>
Accel Partners(1)............................. 5,215,825 11.4%
428 University Avenue
Palo Alto, CA 94301
Benchmark Capital(2).......................... 5,333,153 11.7%
2480 Sand Hill Road, Suite 200
Menlo Park, CA 94025
The Carlyle Group(3).......................... 10,623,229 23.3%
1001 Pennsylvania Avenue N.W., Suite 220 S
Washington, D.C. 20004
Greylock IX Limited Partnership............... 5,333,152 11.7%
One Federal Street
Boston, MA 02110
Vulcan Ventures Incorporated.................. 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(4)............................. 91,032 *
Robert F. Flood............................... 1,839,739 4.0%
Reed E. Hundt(5).............................. 84,157 *
Samuel M. Lamonica, Jr. ...................... 15,937 *
Richard J. Morris............................. 383,333 *
Andrew S. Rachleff(2)......................... 5,333,153 11.7%
Dino J. Vendetti(6)........................... 14,164 *
J. Peter Wagner(1)............................ 5,215,825 11.4%
Frank D. Yeary(3)............................. 10,623,229 23.3%
All directors and executive officers as a
group (19 persons)(7)(8)..................... 33,899,559 74.3%
</TABLE>
- --------
* Less than 1%.
60
<PAGE>
(1) Consists of 5,215,825 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.
(2) 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.
(3) 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.
(4) 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.
(5) 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.
(6) Mr. Vendetti was appointed by Vulcan Ventures as its representative on
NorthPoint's Board of Directors.
(7) Includes 1,603,436 shares of common stock subject to options that are
exercisable within 60 days of March 19, 1999.
(8) Includes 4,679,170 shares held by BCP; 653,983 shares held by BFF;
5,215,825 shares held by affiliates of Accel Partners; 10,623,229 shares
held by various affiliates of the Carlyle Group. 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.
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<PAGE>
CERTAIN TRANSACTIONS
Reorganization
In March 1999, we completed a reorganization in which NorthPoint
Communications, Inc. became a wholly owned subsidiary of a newly created
holding company, NorthPoint Communications Holdings, Inc. As a result of the
reorganization, the stockholders of NorthPoint Communications immediately
before the reorganization became the only stockholders of NorthPoint
Communications Holdings immediately after the reorganization. The
reorganization will allow us to pledge the capital stock of NorthPoint
Communications to the lenders of our anticipated $100,000,000 senior secured
credit facility, which we expect to close in April 1999.
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. On March 22, 1999, we granted an option to purchase
900,000 shares of common stock at an exercisable price of $15.00 per share to
Elizabeth A. Fetter, President and Chief Operating Officer of NorthPoint. The
option exercise prices were set by our board of directors and reflect its best
estimate of the fair value of our stock on the date of each grant.
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 (138,527 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.
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<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 45,622,239 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 45,622,239 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 Sale of Shares
Eligible for Future Sale Could Depress Our Stock Price."
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 March 19, 1999, there were outstanding stock options to purchase an
aggregate of 6,887,094 shares of common stock, of which 1,603,436 are presently
exercisable or exercisable within 60 days. All outstanding stock options are
held by our executive officers, employees or consultants. Following the
offering, we intend to file registration statements on Form S-8 covering the
12,500,000 shares of common stock issuable under our stock option plans
(including shares subject to outstanding options) and the 1,000,000 shares
reserved for issuance under our employee stock purchase plan, thus permitting
the resale of such shares in the public market without restriction under the
Securities Act.
NorthPoint, NorthPoint's executive officers and directors and NorthPoint's
larger 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
49,665,685 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.
63
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary describes the material terms of our capital stock.
However, you should refer 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, the authorized capital stock of
NorthPoint will consist of shares of common stock and shares of
preferred stock. As of March 19, 1999, there were 22 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 March 19, 1999, there were 45,622,239 shares of common
stock outstanding. As of March 19, 1999, options to purchase 6,887,094 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.
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.
Our preferred stock is 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
is 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.
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
64
<PAGE>
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 warrants issued under our bridge loan agreement with MSBLF 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 upon specified events, including:
. stock or cash dividends, stock splits, reverse stock splits or
reclassifications;
. issuances of common stock, rights, options or warrants at prices per
share lower than the then current market value per share;
. distributions of debt, assets, or cash; and
. our consolidation or merger with or into another person or sale of all or
substantially all of our assets.
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. In addition, certain holders of our Series C
preferred stock are entitled to receive 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 warrants issued
under our bridge loan agreement with MSBLF 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
65
<PAGE>
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 of the Registrable Securities relating to the warrants
issued under our bridge loan agreement with MSBLF 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 warrants issued under our bridge loan
agreement with MSBLF.
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 warrants issued under our bridge loan
agreement with MSBLF 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
Our certificate of incorporation divides our board of directors into three
classes of directors serving staggered three-year terms. Under the Delaware
General Corporation Law, directors serving on a classified board can be removed
only for cause.
Our certificate of incorporation and bylaws 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 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
Delaware General Corporation Law, 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;
66
<PAGE>
. 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 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 the Delaware
General Corporation Law 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
Delaware General Corporation Law; and
. indemnify directors and officers to the fullest extent permitted by
Section 145 of the Delaware General Corporation Law, 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
ChaseMellon Shareholder Services is the transfer agent and registrar for the
common stock.
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. Regulatory and other matters
requested by the underwriters 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
67
<PAGE>
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. 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.
68
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
NORTHPOINT COMMUNICATIONS HOLDINGS, INC.
The following consolidated financial statements do not include separate
consolidated financial statements of NorthPoint Communications Holdings, Inc.
as management has determined that they would not be material to investors. This
determination is based on the fact that, as of December 31, 1998, on a
consolidated basis, (i) NorthPoint Communications Holdings, Inc. had not
commenced operations, (ii) NorthPoint Communications Holdings, Inc. had no
significant assets, liabilities, contingent liabilities or commitments, and
(iii) the expected merger of NorthPoint Communications, Inc., with and into
NorthPoint Merger Sub, Inc., a wholly owned subsidiary of NorthPoint
Communications Holdings, Inc., would be a reorganization under common control.
NORTHPOINT COMMUNICATIONS, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Accountants' Report........................................... 2
Consolidated Balance Sheets as of December 31, 1997 and 1998.............. 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........................................................ 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......................................... 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........................................................ 6
Notes to Consolidated Financial Statements................................ 7
</TABLE>
In March 1999, we completed the merger of NorthPoint Communications, Inc.
with and into NorthPoint Merger Sub, Inc., a wholly owned subsidiary of
NorthPoint Communications Holdings, Inc. The financial statements of NorthPoint
Communications, Inc. have been included because they would represent virtually
all of the operations, assets and liabilities of NorthPoint Communications
Holdings, Inc., had the merger been completed as of December 31, 1998.
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, 1997 and 1998, and the results of their operations and their
cash flows for the period from May 16, 1997 (date of inception) through
December 31, 1997 and for the year ended December 31, 1998, 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
----------- ------------
Assets
<S> <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,
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................................ 10,820 10,930
Common stock warrants.............................. -- 2,065,000
Additional paid-in capital......................... 11,417,036 22,116,727
Deferred compensation.............................. (172,957) (5,588,714)
Accumulated deficit................................ (1,296,130) (27,203,200)
----------- ------------
Total stockholders' equity (deficit).............. 9,975,220 (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 A........ 5,820,000 5,820 576,180 582,000
Conversion of
preferred stock
Series A into
preferred stock
Series B........ (4,956,726) -- --
Issuance of
preferred stock
Series B........ 15,587,447 10,631 10,498,076 10,508,707
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.
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.
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.
F-7
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 improvements represent payments to
compensate carriers for infrastructure improvements within their central
offices to allow the Company to install its equipment, which allows the Company
to interconnect with the carrier's network. These payments are capitalized and
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 are recognized when the installation is
completed.
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.
F-8
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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>
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.
F-9
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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 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 Senior Rollover Notes remain
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.
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)
F-12
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The fair value of the warrants has been determined using a Black-Scholes
Model, applying an expected life of 5 years, a weighted average risk-free
interest rate of 5.31%, an expected dividend yield of zero percent and a
volatility of 75%. Based on the fair value 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.
At various dates throughout the period January to July 1999, the Company is
required to issue warrants to purchase a total of 450,000 additional shares of
common stock under the Bridge Loan (Note 14). If the loan is repaid prior to
July 15, 1999, fewer warrants will be issued. The fair value of these warrants
will be recognized upon issuance and will be amortized over the remaining life
of the Bridge Loan.
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
In October 1997, the Company entered into an agreement with a lease provider
under which the Company obtained a capital lease facility of up to $7,500,000.
Under this agreement, the Company entered into capital leases for property
and equipment in 1997 and 1998 (Note 3). The property and equipment leased
under this facility are 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>
F-13
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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).
In 1997, the Company issued 5,820,000 shares of Series A preferred stock. These
shares were subsequently exchanged for 863,274 shares of Series B stock. Since
August 1997 no shares of Series A preferred stock are outstanding. At December
31, 1998, 16,450,721 shares of Series B stock were outstanding and 659,970
shares of Series C stock were outstanding.
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. Holders of preferred
Series B and Series C stock 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.
Conversion Rights
Each share of Series B and Series C preferred stock is convertible into one
share of common stock, (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 carries provisions which protect the holders of such
securities from dilution caused by capital reorganizations, stock splits, or
other such capital changes.
Redemption Rights
The convertible preferred stock is not redeemable.
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.
F-14
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10.STOCK WARRANTS
Equipment Lease Warrants
In conjunction with the capital leases of property and equipment (Note 8),
the Company has issued 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, 1997 and 1998, warrants to purchase 111,246 and
407,902 shares, respectively, had vested. The fair value of the warrants on
each of the vesting dates has been determined using a Black-Scholes Model,
applying an expected life of 5 years, a weighted average risk-free interest
rate of 5.7%, an expected dividend yield of zero percent and a volatility of
75%. The resulting fair value of these warrants was deemed immaterial.
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. These warrants carry provisions which protect the holder from dilution
caused by certain specified events, including:
.stock or cash dividends, stock splits, reverse stock splits or
reclassifications;
. issuances of common stock, rights, options or warrants at prices per
share lower than the then current market value per share;
. distributions of debt, assets, or cash; and
. consolidation or merger with or into another person or sale of all or
substantially all of the Company's assets.
In these events, the exercise price and number of shares issuable upon exercise
of these warrants will be adjusted to reduce the dilution caused by these
events.
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.
F-15
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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>
F-16
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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 $0.11 and $1.69, 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.
The fair value of stock options issued to non-employees, using a Black-
Scholes Model with the above assumptions and a volatility of 75% was determined
to be immaterial and no charge was recorded.
F-17
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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. Under the provisions of APB No.
25, deferred compensation will be recognized in connection with these grants of
approximately $3,500,000.
Pursuant to the terms of the Bridge Loan Agreement (Note 6), the Company has
issued warrants to purchase an additional 42,857 shares of common stock. The
fair value of these warrants, determined using the method and assumptions
discussed in Note 6 was determined to be immaterial. As of February 24, 1999
warrants to issue a total of 1,192,857 shares of common stock were issued under
the Bridge Loan.
Preferred Stock
In February 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. Giving retroactive effect to this split as of December 31, 1998
would not affect earnings per share as reported, because conversion of the
preferred stock would be antidilutive.
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.
F-18
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Certain holders of Series C preferred stock issued on February 19, 1999 are
entitled to receive 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. The issuance of these warrants will be treated as a capital
transaction for their fair value.
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.
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 will be completed in March 1999, and will be a reorganization
under common control.
As of December 31, 1998, NorthPoint Communications Holdings, Inc., on a
consolidated basis, had not commenced operations, and had no significant
assets, liabilities, contingent liabilities or commitments.
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, NorthPoint's executive officers and directors, and NorthPoint's
larger 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>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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............................................................. 7
Use of Proceeds.......................................................... 22
Dividend Policy.......................................................... 22
Capitalization........................................................... 23
Dilution................................................................. 25
Selected Consolidated Financial Data..................................... 26
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 28
Business................................................................. 36
Management............................................................... 51
Principal Stockholders................................................... 60
Certain Transactions..................................................... 62
Shares Eligible for Future Sale.......................................... 63
Description of Capital Stock............................................. 64
Legal Matters............................................................ 67
Experts.................................................................. 67
Where You Can Find More Information...................................... 68
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 15,519,866 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 $10,463,005.
(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 Messrs. Euske,
Flood, Gorosh, Gregory, Malaga and Monahan, VLG Investments and Ms. Chinn.
The consideration received for such shares was $582,000.00. In August 1997,
all of such shares of Series A preferred stock were sold 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, and then exchanged for 863,274
shares of Series B preferred stock. Since August 1997, the Company has had
no shares of Series A preferred stock outstanding.
(8) From September 1997 through March 1999, the Company granted stock
options to purchase an aggregate of 8,489,787 shares of common stock to
employees, consultants and directors with exercise prices ranging from
$0.07 to $15.00 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 Amended and Restated Certificate of Incorporation of NorthPoint
Communications Holdings, Inc.
3.2 Amended and Restated Bylaws of NorthPoint Communications Holdings, Inc.
4.1 Form of Specimen Common Stock Certificate of NorthPoint Communications
Holdings, 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 The NorthPoint Communications Holdings, Inc. Employee Stock Purchase
Plan.
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 March 22, 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 Guaranty dated March 22, 1999 from NorthPoint Communications Holdings,
Inc. as Guarantor.
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 of NorthPoint Communications, Inc.+.
10.15 Series C Preferred Stock Purchase Warrant Agreement between NorthPoint
Communications, Inc. and Intel Corporation, dated August 26, 1998.+
10.16 Letter agreement dated March 22, 1999 between NorthPoint Communications
Holdings, Inc. and Morgan Stanley Senior Funding, Inc.
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.*
10.20 The NorthPoint Communications Holdings, Inc. 1999 Stock Plan.
10.21 Form of Indemnification Agreement of NorthPoint Communications Holdings,
Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.22 Agreement and Plan of Merger of NorthPoint Merger Sub, Inc. and
NorthPoint Communications, Inc., dated March 22, 1999.
10.23 Assignment and Assumption Agreement between NorthPoint Communications,
Inc. and NorthPoint Communications Holdings, Inc., dated March 22, 1999.
10.24 First Amendment to Note Purchase Agreement dated as of March 22, 1999
between NorthPoint Communications, Inc. and Morgan Stanley Senior
Funding, 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.+
27.1 Financial Data Schedule.+
</TABLE>
- --------
+ Previously Filed.
* 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 Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of San
Francisco, state of California, on March 31, 1999.
NORTHPOINT COMMUNICATIONS HOLDINGS, INC.
*
By: ______________________________________
Michael W. Malaga
President and Chief Executive Officer
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>
* Chief Executive Officer and March 31, 1999
____________________________________ Director (Principal
Michael W. Malaga Executive Officer)
/s/ Henry P. Huff Chief Financial Officer and March 31, 1999
____________________________________ Vice President, Finance
Henry P. Huff (Principal Financial
Officer and Principal
Accounting Officer)
* Director March 31, 1999
____________________________________
Robert K. Dahl
* Director March 31, 1999
____________________________________
Reed H. Hundt
* Director March 31, 1999
____________________________________
Andrew S. Rachleff
* Director March 31, 1999
____________________________________
Dino J. Vendetti
* Director March 31, 1999
____________________________________
J. Peter Wagner
* Director March 31, 1999
____________________________________
Frank D. Yeary
</TABLE>
*By: /s/ Henry P. Huff
---------------------------
Henry P. Huff
Attorney-in-fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of NorthPoint
Communications Holdings, Inc.
3.2 Amended and Restated Bylaws of NorthPoint Communications Holdings,
Inc.
4.1 Form of Specimen Common Stock Certificate of NorthPoint Communications
Holdings, 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 The NorthPoint Communications Holdings, Inc. Employee Stock Purchase
Plan.
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 Holdings, Inc. and certain of its stockholders, dated
March 22, 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 Guaranty dated March 22, 1999 from NorthPoint Communications Holdings,
Inc. as Guarantor.
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 of NorthPoint Communications, Inc.+
10.15 Series C Preferred Stock Purchase Warrant Agreement between NorthPoint
Communications, Inc. and Intel Corporation, dated August 26, 1998.+
10.16 Letter agreement dated March 22, 1999 between NorthPoint
Communications Holdings, Inc. and Morgan Stanley Senior Funding, Inc.
</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.*
10.20 The NorthPoint Communications Holdings, Inc. 1999 Stock Plan.
10.21 Form of Indemnification Agreement of NorthPoint Communications
Holdings, Inc.
10.22 Agreement and Plan of Merger of NorthPoint Merger Sub, Inc. and
NorthPoint Communications, Inc., dated March 22, 1999.
10.23 Assignment and Assumption Agreement between NorthPoint Communications,
Inc. and NorthPoint Communications Holdings, Inc., dated March 22,
1999.
10.24 First Amendment to Note Purchase Agreement dated as of March 22, 1999
between NorthPoint Communications, Inc. and Morgan Stanley Senior
Funding, 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.+
27.1 Financial Data Schedule.+
</TABLE>
- --------
+ Previously filed.
* To be filed by amendment.
<PAGE>
Exhibit 1.1
Northpoint Communications Holdings, Inc.
Common Stock
(par value $0.001 per share)
Underwriting Agreement
----------------------
, 1999
Goldman, Sachs & Co.,
Morgan Stanley & Co. Incorporated,
Credit Suisse First Boston Corporation,
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.
Ladies and Gentlemen:
Northpoint Communications Holdings, Inc., a Delaware corporation (the
"Company"), proposes, subject to the terms and conditions stated herein, to
issue and sell to the Underwriters named in Schedule I hereto (the
"Underwriters") an aggregate of ........ shares (the "Firm Shares") and, at the
election of the Underwriters, up to ........ additional shares (the "Optional
Shares") of Common Stock, par value $0.001 per share ("Stock") of the Company
(the Firm Shares and the Optional Shares that the Underwriters elect to purchase
pursuant to Section 2 hereof being collectively called the "Shares").
1. The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-73065) (the
"Initial Registration Statement") in respect of the Shares has been filed
with the Securities and Exchange Commission (the "Commission"); the Initial
Registration Statement and any post-effective amendment thereto, each in
the form heretofore delivered to you, and, excluding exhibits thereto, to
you for each of the other Underwriters, have been declared effective by the
Commission in such form; other than a registration statement, if any,
increasing the size of the offering (a "Rule 462(b) Registration
Statement"), filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended (the "Act"), which became effective upon filing, no other
document with respect to the Initial Registration Statement has heretofore
been filed with the Commission; and no stop order suspending the
effectiveness of the Initial Registration Statement, any post-effective
amendment thereto or the Rule 462(b) Registration Statement, if any, has
been issued and no proceeding for that purpose has been initiated or
threatened by the Commission (any preliminary prospectus included in the
Initial Registration Statement or
<PAGE>
filed with the Commission pursuant to Rule 424(a) of the rules and
regulations of the Commission under the Act is hereinafter called a
"Preliminary Prospectus"; the various parts of the Initial Registration
Statement and the Rule 462(b) Registration Statement, if any, including all
exhibits thereto and including the information contained in the form of
final prospectus filed with the Commission pursuant to Rule 424(b) under
the Act in accordance with Section 5(a) hereof and deemed by virtue of Rule
430A under the Act to be part of the Initial Registration Statement at the
time it was declared effective, each as amended at the time such part of
the Initial Registration Statement became effective or such part of the
Rule 462(b) Registration Statement, if any, became or hereafter becomes
effective, are hereinafter collectively called the "Registration
Statement"; and such final prospectus, in the form first filed pursuant to
Rule 424(b) under the Act, is hereinafter called the "Prospectus");
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through
Goldman, Sachs & Co. expressly for use therein;
(c) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of
the Act and the rules and regulations of the Commission thereunder and do
not and will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto, and as of the applicable
filing date as to the Prospectus and any amendment or supplement thereto,
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made in reliance
upon and in conformity with information furnished in writing to the Company
by an Underwriter through Goldman, Sachs & Co. expressly for use therein;
(d) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included in the
Prospectus any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or
from any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus; and, since
the respective dates as of which information is given in the Registration
Statement and the Prospectus, there has not been any change in the capital
stock or long-term debt of the Company or any of its subsidiaries or any
material adverse change, or any development involving a prospective
material adverse change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of the
Company and its subsidiaries, otherwise than as set forth or contemplated
in the Prospectus;
(e) The Company and its subsidiaries have good and marketable title in
fee simple to all real property and good and marketable title to all
personal property owned by them, in
2
<PAGE>
each case free and clear of all liens, encumbrances and defects except such
as are described in the Prospectus or such as do not materially affect the
value of such property and do not interfere with the use made and proposed
to be made of such property by the Company and its subsidiaries; and any
real property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with
the use made and proposed to be made of such property and buildings by the
Company and its subsidiaries;
(f) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus, and has been duly
qualified as a foreign corporation for the transaction of business and is
in good standing under the laws of each other jurisdiction in which it owns
or leases properties or conducts any business so as to require such
qualification, or is subject to no material liability or disability by
reason of the failure to be so qualified in any such jurisdiction; and each
subsidiary of the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation;
(g) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and non-
assessable and conform to the description of the Stock contained in the
Prospectus; and all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and issued,
are fully paid and non-assessable and (except for directors' qualifying
shares and except as set forth in the Prospectus) are owned directly or
indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims;
(h) The unissued Shares to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will be
duly and validly issued and fully paid and non-assessable and will conform
to the description of the Stock contained in the Prospectus;
(i) The issue and sale of the Shares by the Company and the compliance
by the Company with all of the provisions of this Agreement and the
consummation of the transactions herein contemplated will not conflict with
or result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will such action result
in any violation of the provisions of the Certificate of Incorporation or
By-laws of the Company or any statute or any order, rule or regulation of
any court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties; and no
consent, approval, authorization, order, registration or qualification of
or with any such court or governmental agency or body is required for the
issue and sale of the Shares or the consummation by the Company of the
transactions contemplated by this Agreement, except the registration under
the Act of the Shares and such consents, approvals, authorizations,
registrations or qualifications as may be required under state securities
or Blue Sky laws in connection with the purchase and distribution of the
Shares by the Underwriters;
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(j) Neither the Company nor any of its subsidiaries is in violation of
its Certificate of Incorporation or By-laws or in default in the
performance or observance of any material obligation, agreement, covenant
or condition contained in any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which it is a party or
by which it or any of its properties may be bound;
(k) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the Stock, and under the caption "Underwriting",
insofar as they purport to describe the provisions of the documents
referred to therein, are accurate, complete and fair;
(l) Other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company or any of
its subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, would individually or in the aggregate
have a material adverse effect on the current or future consolidated
financial position, stockholders' equity or results of operations of the
Company and its subsidiaries; and, to the best of the Company's knowledge,
no such proceedings are threatened or contemplated by governmental
authorities or threatened by others;
(m) The Company is not and, after giving effect to the offering and
sale of the Shares, will not be an "investment company", as such term is
defined in the Investment Company Act of 1940, as amended (the "Investment
Company Act");
(n) PricewaterhouseCoopers LLP, who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder;
(o) The Company has reviewed its operations and those of its
subsidiaries and any third parties with which the Company or any of its
subsidiaries has a material relationship to evaluate the extent to which
the business or operations of the Company or any of its subsidiaries will
be affected by Year 2000 issues. As a result of such review, the Company
represents and warrants that the disclosure in the Registration Statement
relating to Year 2000 issues is accurate and complies in all material
respects with the rules and regulations under the Act. "Year 2000 issues"
as used herein means Year 2000 issues described in or contemplated by the
Commission's Interpretation: Disclosure of Year 2000 Issues and
Consequences by Public Companies, Investment Advisers, Investment
Companies, and Municipal Securities Issuers (Release No. 33-7558);
(p) The Company and each of its subsidiaries has (a) all licenses,
certificates, permits, authorizations, approvals, franchises and other
rights from, and has made all declarations and filings with all federal,
state and local authorities (including, without limitation, the Federal
Communications Commission), all self-regulatory authorities and all courts
and other tribunals (each an "Authorization") necessary to engage in the
business conducted by the Company and its subsidiaries in the manner
described in the Prospectus, except as described in the Prospectus and
except insofar as the failure to obtain any such Authorization would not
reasonably be expected to individually or in the aggregate, result in a
material adverse effect on the properties, business, results of operations,
condition (financial or otherwise), affairs or prospects of the Company and
its subsidiaries, taken as a whole, and no
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such Authorization contains a materially burdensome restriction that is not
disclosed in the Prospectus and (b) not received any notice that any
governmental body or agency is considering limiting, suspending or revoking
any such Authorization. Except where the failure to be in full force and
effect would not individually or in the aggregate result in a material
adverse effect on the properties, business, results of operations,
condition (financial or otherwise), affairs or prospects of the Company and
its subsidiaries, taken as a whole, all such Authorizations are valid and
in full force and effect and the Company and each of its subsidiaries is in
compliance in all material respects with the terms and conditions of all
such Authorizations and with the rules and regulations of the regulatory
authorities having jurisdiction with respect thereto; and
(q) Except as described in the Prospectus, the Company and its
subsidiaries own, possess or have the right to employ sufficient patents,
patent rights, licenses, (including all Federal Communications Commission,
state, local or other jurisdictional regulatory licenses), inventions,
copyrights, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, software, systems or
procedures), trademarks, service marks and trade names, inventions,
computer programs, technical data and information (collectively, the
"Intellectual Property Rights") reasonably necessary to conduct their
businesses as now conducted; and the expected expiration of any such
Intellectual Property Rights would not, individually or in the aggregate,
result in a material adverse change, or any development that could
reasonably be expected to result in a material adverse change, in the
condition, financial or otherwise, or in the business, operations or
prospects, whether or not arising from transactions in the ordinary course
of business, of the Company and its subsidiaries, considered as one entity.
The Intellectual Property Rights presently employed by the Company and its
subsidiaries in connection with the businesses now operated by them or
which are proposed to be operated by them are owned, to the Company's
knowledge, free and clear of and without violating any right, claimed
rights, charge, encumbrance, pledge, security interest, restriction or lien
of any kind of any other person and neither the Company nor any of its
subsidiaries has received any notice of infringement of or conflict with
asserted rights of others with respect to any of the foregoing except as
would not reasonably be expected to individually or in the aggregate,
result in a material adverse effect on the properties, business, results of
operations, condition (financial or otherwise), affairs or prospects of the
Company and its subsidiaries, taken as a whole. The use of the
Intellectual Property in connection with the business and operations of the
Company and its subsidiaries does not infringe on the rights of any person,
except as could not reasonably be expected to individually or in the
aggregate result in a material adverse effect on the properties, business,
results of operations, condition (financial or otherwise), affairs or
prospects of the Company and its subsidiaries, taken as a whole.
2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price per share of $................, the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I hereto and (b) in the
event and to the extent that the Underwriters shall exercise the election to
purchase Optional Shares as provided below, the Company agrees to issue and sell
to each of the Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase from the Company, at the purchase price per share set
forth in clause (a) of this Section 2, that portion of the number of Optional
Shares as to
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which such election shall have been exercised (to be adjusted by you so as to
eliminate fractional shares) determined by multiplying such number of Optional
Shares by a fraction, the numerator of which is the maximum number of Optional
Shares which such Underwriter is entitled to purchase as set forth opposite the
name of such Underwriter in Schedule I hereto and the denominator of which is
the maximum number of Optional Shares that all of the Underwriters are entitled
to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to ................... Optional Shares, at the purchase price
per share set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company,
given within a period of 30 calendar days after the date of this Agreement,
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery (as defined in Section 4
hereof) or, unless you and the Company otherwise agree in writing, earlier than
two or later than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company shall be delivered by or on behalf of the Company to
Goldman, Sachs & Co., through the facilities of the Depository Trust Company
("DTC"), for the account of such Underwriter, against payment by or on behalf of
such Underwriter of the purchase price therefor by wire transfer of Federal
(same-day) funds to the account specified by the Company to Goldman, Sachs & Co.
at least forty-eight hours in advance. The Company will cause the certificates
representing the Shares to be made available for checking and packaging at least
twenty-four hours prior to the Time of Delivery (as defined below) with respect
thereto at the office of DTC or its designated custodian (the "Designated
Office"). The time and date of such delivery and payment shall be, with respect
to the Firm Shares, 9:30 a.m., New York City time, on ............., 1999 or
such other time and date as Goldman, Sachs & Co. and the Company may agree upon
in writing, and, with respect to the Optional Shares, 9:30 a.m., New York time,
on the date specified by Goldman, Sachs & Co. in the written notice given by
Goldman, Sachs & Co. of the Underwriters' election to purchase such Optional
Shares, or such other time and date as Goldman, Sachs & Co. and the Company may
agree upon in writing. Such time and date for delivery of the Firm Shares is
herein called the "First Time of Delivery", such time and date for delivery of
the Optional Shares, if not the First Time of Delivery, is herein called the
"Second Time of Delivery", and each such time and date for delivery is herein
called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on behalf
of the parties hereto pursuant to Section 7 hereof, including the cross receipt
for the Shares and any additional documents requested by the Underwriters
pursuant to Section 7(l) hereof, will be delivered at the offices of [Latham &
Watkins, 505 Montgomery Street, San Francisco, California 94111] (the "Closing
Location"), and the Shares will be delivered at the Designated Office, all at
such Time of Delivery. A meeting will be held at the Closing Location at 2:00
p.m., New York City time, on the New York Business Day next preceding such Time
of Delivery, at which meeting the final drafts of the
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documents to be delivered pursuant to the preceding sentence will be available
for review by the parties hereto. For the purposes of this Section 4, "New York
Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York are generally
authorized or obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier
time as may be required by Rule 430A(a)(3) under the Act; to make no
further amendment or any supplement to the Registration Statement or
Prospectus which shall be disapproved by you promptly after reasonable
notice thereof; to advise you, promptly after it receives notice thereof,
of the time when any amendment to the Registration Statement has been filed
or becomes effective or any supplement to the Prospectus or any amended
Prospectus has been filed and to furnish you with copies thereof; to advise
you, promptly after it receives notice thereof, of the issuance by the
Commission of any stop order or of any order preventing or suspending the
use of any Preliminary Prospectus or prospectus, of the suspension of the
qualification of the Shares for offering or sale in any jurisdiction, of
the initiation or threatening of any proceeding for any such purpose, or of
any request by the Commission for the amending or supplementing of the
Registration Statement or Prospectus or for additional information; and, in
the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus or
suspending any such qualification, promptly to use its best efforts to
obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with
such laws so as to permit the continuance of sales and dealings therein in
such jurisdictions for as long as may be necessary to complete the
distribution of the Shares, provided that in connection therewith the
Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any jurisdiction;
(c) Prior to 10:00 A.M., New York City time, on the New York Business
Day next succeeding the date of this Agreement and from time to time, to
furnish the Underwriters with copies of the Prospectus in New York City in
such quantities as you may reasonably request, and, if the delivery of a
prospectus is required at any time prior to the expiration of nine months
after the time of issue of the Prospectus in connection with the offering
or sale of the Shares and if at such time any event shall have occurred as
a result of which the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made when such Prospectus
is delivered, not misleading, or, if for any other reason it shall be
necessary during such period to amend or supplement the Prospectus in order
to comply with the Act, to notify you and upon your request to prepare and
furnish without charge to each Underwriter and to any dealer in securities
as many copies as you may from time to time reasonably request of an
amended Prospectus or a supplement to the Prospectus which will correct
such statement or omission or effect such compliance, and in case any
Underwriter is required to deliver a prospectus in
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connection with sales of any of the Shares at any time nine months or more
after the time of issue of the Prospectus, upon your request but at the
expense of such Underwriter, to prepare and deliver to such Underwriter as
many copies as you may request of an amended or supplemented Prospectus
complying with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c)
under the Act), an earnings statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11(a) of the Act and the
rules and regulations thereunder (including, at the option of the Company,
Rule 158);
(e) During the period beginning from the date hereof and continuing to
and including the date 180 days after the date of the Prospectus, not to
offer, sell, contract to sell, hedge or otherwise dispose of, except as
provided hereunder, any Stock or any other securities of the Company that
are substantially similar to the Stock, including but not limited to any
securities that are convertible into or exchangeable for, or that represent
the right to receive, Stock or any such substantially similar securities
(other than pursuant to employee stock option or benefit plans existing on,
or upon the conversion or exchange of convertible or exchangeable
securities outstanding as of, or upon the exercise of warrants or options
outstanding as of, the date of this Agreement), without your prior written
consent; notwithstanding the foregoing, the Company may issue Stock or
substantially similar securities or securities convertible into or
exchangeable for shares of Stock or substantially similar securities in
connection with strategic relationships and acquisitions of businesses,
technologies or products complementary to those of the Company, so long as
the recipients of such securities agree to be bound by an equivalent lock-
up agreement for the remainder of the 180-day lock-up period;
(f) To furnish to its stockholders as soon as practicable after the
end of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flows of the Company
and its consolidated subsidiaries certified by independent public
accountants) and, as soon as practicable after the end of each of the first
three quarters of each fiscal year (beginning with the fiscal quarter
ending after the effective date of the Registration Statement), to make
available to its stockholders consolidated summary financial information of
the Company and its subsidiaries for such quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you (i) copies of all reports or
other communications (financial or other) furnished to stockholders and any
reports and financial statements furnished to or filed with the Commission
or any national securities exchange on which any class of securities of the
Company is listed, provided that any reports, financial statements or other
communications that are available by EDGAR need not be furnished; and (ii)
such additional information concerning the business and financial condition
of the Company as you may from time to time reasonably request (such
financial statements to be on a consolidated basis to the extent the
accounts of the Company and its subsidiaries are consolidated in reports
furnished to its stockholders generally or to the Commission);
(h) To use the net proceeds received by it from the sale of the Shares
pursuant to this Agreement in the manner specified in the Prospectus under
the caption "Use of Proceeds";
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(i) To use its best efforts to list for quotation the Shares on the
Nasdaq National Market System ("Nasdaq");
(j) To file with the Commission such information on Form 10-Q or Form
10-K as may be required by Rule 463 under the Act; and
(k) If the Company elects to rely upon Rule 462(b), the Company shall
file a Rule 462(b) Registration Statement with the Commission in compliance
with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of this
Agreement, and the Company shall at the time of filing either pay to the
Commission the filing fee for the Rule 462(b) Registration Statement or
give irrevocable instructions for the payment of such fee pursuant to Rule
111(b) under the Act.
6. The Company covenants and agrees with the several Underwriters that
the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the Blue Sky Memorandum,
closing documents (including any compilations thereof) and any other documents
in connection with the offering, purchase, sale and delivery of the Shares;
(iii) all expenses in connection with the qualification of the Shares for
offering and sale under state securities laws as provided in Section 5(b)
hereof, including the fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky survey
(iv) all fees and expenses in connection with listing the Shares on the Nasdaq;
(v) the filing fees incident to, and the fees and disbursements of counsel for
the Underwriters in connection with, securing any required review by the
National Association of Securities Dealers, Inc. of the terms of the sale of the
Shares; (vi) the cost of preparing stock certificates; (vii) the cost and
charges of any transfer agent or registrar; and (viii) all other costs and
expenses incident to the performance of its obligations hereunder which are not
otherwise specifically provided for in this Section. It is understood, however,
that, except as provided in this Section, and Sections 8 and 11 hereof, the
Underwriters will pay all of their own costs and expenses, including the fees of
their counsel, stock transfer taxes on resale of any of the Shares by them, and
any advertising expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company herein are, at and as of such Time of Delivery, true and correct,
the condition that the Company shall have performed all of its obligations
hereunder theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing
by the rules and regulations under the Act and in accordance with Section
5(a) hereof; if the Company has elected to rely upon Rule 462(b), the Rule
462(b) Registration Statement shall have become effective by 10:00 P.M.,
Washington, D.C. time, on the date of this Agreement; no stop order
suspending the effectiveness of the Registration Statement or any part
thereof shall have been issued and no proceeding for that purpose shall
have been initiated or threatened by the Commission; and all
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requests for additional information on the part of the Commission shall
have been complied with to your reasonable satisfaction;
(b) Sullivan & Cromwell, counsel for the Underwriters, shall have
furnished to you such written opinion or opinions (a draft of each such
opinion is attached as Annex II(a) hereto), dated such Time of Delivery,
with respect to the matters covered in paragraphs (i), (ii), (v), (viii)
and (x) of subsection (c) below as well as such other related matters as
you may reasonably request, and such counsel shall have received such
papers and information as they may reasonably request to enable them to
pass upon such matters;
(c) Latham & Watkins, counsel for the Company, shall have furnished to
you their written opinion (a draft of such opinion is attached as Annex
II(b) hereto), dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware, with corporate power and authority to own its
properties and conduct its business as described in the Prospectus;
(ii) The Shares being delivered at such Time of Delivery have
been duly and validly authorized and issued and are fully paid and
non-assessable;
(iii) Based solely on certificates from public officials, such
counsel shall confirm that the Company is qualified to do business in
the following states: [list to be inserted by such counsel];
(iv) Each subsidiary of the Company has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation; and all of the issued
shares of capital stock of NorthPoint Communications, Inc., being one
of the Company's subsidiaries, have been duly and validly authorized
and issued, are fully paid and non-assessable, and (except for
directors' qualifying shares and except as otherwise set forth in the
Prospectus) are owned directly or indirectly by the Company, free and
clear of all liens, encumbrances, equities or claims (such counsel
being entitled to rely in respect of the opinion in this clause upon
opinions of local counsel and in respect to matters of fact upon
certificates of officers of the Company or its subsidiaries, provided
that such counsel shall state that they believe that both you and
they are justified in relying upon such opinions and certificates);
(v) This Agreement has been duly authorized, executed and
delivered by the Company;
(vi) The issue and sale of the Shares being delivered at such
Time Delivery by the Company and the compliance by the Company with
all of the provisions of this Agreement and the consummation of the
transactions herein contemplated will not conflict with or result in
a breach or violation of any terms or provisions of or constitute a
default under, any agreement listed on Schedule A to such counsel's
----------
opinion, nor will such action result in any violation of the
provisions of the Certificate of Incorporation or By-laws of the
Company or any California statute, rule or
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regulation known to such counsel to be applicable to the Company
(other than federal or state securities laws which are addressed
elsewhere herein);
(vii) To the best knowledge of such counsel, no consent,
approval, authorization, order, registration or qualification of or
with any such court or governmental agency or body is required for
the issue and sale of the Shares contemplated by this Agreement,
except the registration under the Act of the Shares, and such
consents, approvals, authorizations, registrations or qualifications
as may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of the Shares by the
Underwriters;
(viii) The statements set forth in the Prospectus under the
caption "Description of Capital Stock", insofar as they purport to
constitute a summary of the terms of the Stock, and under the caption
"Underwriting", insofar as they purport to describe the provisions of
the documents referred to therein, are accurate in all material
respects;
(ix) The Company is not an "investment company", as such term
is defined in the Investment Company Act; and
(x) The Registration Statement and the Prospectus (other than
the financial statements and related schedules therein, as to which
such counsel need express no opinion) comply as to form in all
material respects with the requirements for registration statements
on Form S-1 under the Act and the rules and regulations thereunder;
although they do not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, except for those referred
to in the opinion in subsection (viii) of this section 7(c), they
have no reason to believe that, as of its effective date, the
Registration Statement (other than the financial statements and
related schedules therein, as to which such counsel need express no
opinion) contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary
to make the statements therein not misleading or that, as of its
date, the Prospectus (other than the financial statements and related
schedules therein, as to which such counsel need express no opinion)
contained an untrue statement of a material fact or omitted to state
a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading
or that, as of such Time of Delivery, either the Registration
Statement or the Prospectus (other than the financial statements and
related schedules therein, as to which such counsel need express no
opinion) contains an untrue statement of a material fact or omits to
state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading; if for any reason after the date of this Agreement and
prior to such Time of Delivery the Company shall amend or supplement
either the Registration Statement or the Prospectus, then appropriate
modifications to the foregoing form of opinion shall be made so that
references therein to the Registration Statement or the Prospectus
shall include, as of the pertinent dates, such amendments or
supplements thereto;
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(d) Steven J. Gorosh, General Counsel of the Company, shall have
furnished to you such written opinion (a draft of each such opinion is
attached as Annex II (c) hereto), dated such Time of Delivery, in form and
substance satisfactory to you, to the effect that:
(i) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each jurisdiction in which it owns or leases
properties or conducts any business so as to require such
qualification or is subject to no material liability or disability by
reason of failure to be so qualified in any such jurisdiction (such
counsel being entitled to rely in respect of the opinion in this
clause upon opinions of local counsel and in respect of matters of
fact upon certificates of officers of the Company, provided that such
counsel shall state that he believes that both you and he are
justified in relying upon such opinions and certificates);
(ii) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of
the Company (including the Shares being delivered at such Time of
Delivery) have been duly and validly authorized and issued and are
fully paid and non-assessable; and the Shares conform to the
description of the Stock contained in the Prospectus;
(iii) All of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and
issued, are fully paid and non-assessable, and (except for
directors' qualifying shares and except as otherwise set forth in the
Prospectus) are owned directly by or indirectly by the Company, free
and clear of all liens, encumbrances, equities or claims (such
counsel being entitled to rely in respect of the opinion in this
clause upon opinions of local counsel and in respect to matters of
fact upon certificates of officers of the Company or its
subsidiaries, provided that such counsel shall state that he believes
that both you and he are justified in relying upon such opinions and
certificates);
(iv) The Company and its subsidiaries have good and marketable
title in fee simple to all real property owned by them, in each case
free and clear of all liens, encumbrances and defects except such as
are described in the Prospectus or such as do not materially affect
the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company and its
subsidiaries; and any real property and buildings held under lease by
the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be
made of such property and buildings by the Company and its
subsidiaries (in giving the opinion in this clause, such counsel may
state that no examination of record titles for the purpose of such
opinion has been made, and that such counsel is relying upon a
general review of the titles of the Company and its subsidiaries,
upon opinions of local counsel and abstracts, reports and policies of
title companies rendered or issued at or subsequent to the time of
acquisition of such property by the Company or its subsidiaries, upon
opinions of counsel to the lessors of such property and, in respect
to matters of fact, upon certificates of officers of the Company or
its subsidiaries, provided that such counsel shall state that he
believes
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that both you and he are justified in relying upon such opinions,
abstracts, reports, policies and certificates);
(v) To the best of such counsel's knowledge and other than as
set forth in the Prospectus, there are no legal or governmental
proceedings pending to which the Company or any of its subsidiaries
is a named party or of which any property of the Company or any of
its subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, would individually or in the
aggregate have a material adverse effect on the current or future
consolidated financial position, stockholders' equity or results of
operations of the Company and its subsidiaries; and, to the best of
such counsel's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(vi) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws or, to the
best of such counsel's knowledge and other than as set forth in the
Prospectus, in default in the performance or observance of any
material obligation, agreement, covenant or condition contained in
any indenture, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument to which it is a party or by which it
or any of its properties may be bound;
(vii) Neither the execution and delivery of this Agreement nor
the sale of the Shares contemplated hereby will violate (a) the
Communications Act of 1934 (the "Communications Act") as interpreted
as of this date, (b) the Telecommunications Act of 1996 (the "Telecom
Act of 1996") as interpreted as of this date, (c) any rules or
regulations of the Federal Communications Commission applicable to
the Company as interpreted as of this date or (d) any rules or
regulations of the California Public Utilities Commission, New York
Public Service Commission, Massachusetts Department of Public
Utilities, Washington Utilities and Transportation Commission,
Illinois Commerce Commission, the Oregon Public Utilities Commission
or any other jurisdiction where the Company has obtained Competitive
Local Exchange Carrier ("CLEC") regulatory approval (collectively,
the "State Telecommunications Agencies") as interpreted as of the
date of such opinion;
(viii) The Company (a) has made all reports and filings, and paid
all fees, required by the Federal Communications Commission and any
of the State Telecommunications Agencies and (b) has all
certificates, orders, permits, licenses, authorizations, consents and
approvals of and from, and had made all filings and registrations
with, the Federal Communications Commission and any of the State
Telecommunications Agencies necessary to own, lease, license and use
its properties and assets and to conduct its business as described in
the Prospectus; and, except as described in the Prospectus, there are
no pending or, to such counsel's knowledge, threatened proceedings
before the Federal Communications Commission or any State
Telecommunications Agency relating to the revocation or modification
or any such certificates, orders, permits, licenses, authorizations,
consents or approvals which, if determined adversely, would
individually or in the aggregate, result in a material adverse effect
on the properties, business, results of operations, condition
(financial or otherwise), affairs or prospects of the Company and its
subsidiaries, taken as a whole;
13
<PAGE>
(ix) No decree or order of the Federal Communications
Commission or any State Telecommunications Agency is outstanding
against the Company and no litigation, proceeding, inquiry or
investigation has been commenced or, to such counsel's knowledge,
threatened, and no formal notice of violation or order to show cause
has been issued, against the Company before the Federal
Communications Commission or any of the State Telecommunications
Agencies;
(x) The statements set forth in the Prospectus under the
captions "Risk Factors--We Depend on ILECs for Collocation Space,
"Risk Factors--We Depend on ILECs for Transmission Facilities and
the Provision of Copper Lines", "Risk Factors--The Quality,
Pricing and Availability of the ILEC Copper Lines are Uncertain",
"Risk Factors--We Depend on Interconnection Agreements with ILECs
for the Success of our Strategy", "Risk Factors--The Market in
Which We Operate is Highly Competitive, and We May Not Be Able to
Compute Effectively, Especially Against Established Industry
Competitors with Significant Greater Financial Resources", "Risk
Factors--Our Services are Subject to Government Regulation, and
Changes in Current or Future Laws or Regulations Could Restrict the
Way We Operate our Business", "Risk Factors--Uncertain Federal and
State Tax and Other Surcharges on Our Services May Increase our
Payment Obligations", and "Business--Government Regulation", to
the extent such statements constitute summaries of the Telecom Act of
1996 or rules and regulations of the Federal Communications
Commission or any of the State Telecommunications Agencies, or
insofar as they purport to describe the provisions of the other laws
and documents referred to therein are accurate, complete and fair;
(xi) As of the date of such opinion, (A) the Company has
obtained CLEC regulatory approval in each of the States referred to
in the Prospectus, which are: [such counsel to list such states], and
no such regulatory approval has been withdrawn, and no such
regulatory approval is the subject of any legal challenge (except as
disclosed in the Prospectus) and (B) the Company has not received any
notice of rejection or denial, nor has it withdrawn, any of its
applicants for CLEC approval in any additional States where such
applications, as of the date of the Prospectus, are pending approval;
(xii) The Company has the consents, approvals, authorizations,
licenses, certificates, permits, or orders of the Federal
Communications Commission or the State Telecommunications Agencies,
if any is required, for the sale of the Shares as contemplated in the
Prospectus, except where the failure to obtain the consents,
approvals, authorizations, licenses, certificates, permits or orders
would not individually or in the aggregate, have a material adverse
effect on the transactions contemplated by this Agreement, or result
in a material adverse effect on the properties, business, results of
operations, condition (financial or otherwise), affairs or prospects
of the Company and its subsidiaries, taken as a whole; and
(xiii) The issue and sale of the Shares being delivered at such
Time of Delivery by the Company and the compliance by the Company
with all of the provisions of this Agreement and the consummation of
the transactions herein contemplated will not conflict with or result
in a breach or violation of any of the terms
14
<PAGE>
or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other material agreement
or instrument known to such counsel to which the Company or any of
its subsidiaries is a party or by which the Company or any of it
subsidiaries is bound or to which any of the property or assets of
the Company or any of its subsidiaries is subject, nor will such
action result in any violation of the provisions of the Certificate
of Incorporation or By-laws of the Company or any statute, order,
rule or regulation known to such counsel to be applicable to the
Company or any of its subsidiaries of any court or government agency
or body having jurisdiction (other than federal or state securities
laws which are addressed by other counsel);
(e) On the date of the Prospectus at a time prior to the execution of
this Agreement, at 9:30 a.m., New York City time, on the effective date of
any post-effective amendment to the Registration Statement filed subsequent
to the date of this Agreement and also at each Time of Delivery,
PricewaterhouseCoopers LLP shall have furnished to you a letter or letters,
dated the respective dates of delivery thereof, in form and substance
satisfactory to you, to the effect set forth in Annex I hereto (the
executed copy of the letter delivered prior to the execution of this
Agreement is attached as Annex I(a) hereto and a draft of the form of
letter to be delivered on the effective date of any post-effective
amendment to the Registration Statement and as of each Time of Delivery is
attached as Annex I(b) hereto);
(f) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus,
and (ii) since the respective dates as of which information is given in the
Prospectus there shall not have been any change in the capital stock or
long-term debt of the Company or any of its subsidiaries or any change, or
any development involving a prospective change, in or affecting the general
affairs, management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries, otherwise than as set forth
or contemplated in the Prospectus, the effect of which, in any such case
described in Clause (i) or (ii), is in the judgment of the Representatives
so material and adverse as to make it impracticable or inadvisable to
proceed with the public offering or the delivery of the Shares being
delivered at such Time of Delivery on the terms and in the manner
contemplated in the Prospectus;
(g) On or after the date hereof (i) no downgrading shall have occurred
in the rating accorded the Company's debt securities by any "nationally
recognized statistical rating organization", as that term is defined by the
Commission for purposes of Rule 436(g)(2) under the Act, and (ii) no such
organization shall have publicly announced that it has under surveillance
or review, with possible negative implications, its rating of any of the
Company's debt securities;
(h) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange or on Nasdaq; (ii) a
suspension or material limitation in trading in the Company's securities on
Nasdaq; (iii) a general moratorium on commercial banking activities
declared by either Federal or New York or California State authorities; or
(iv) the outbreak or escalation of
15
<PAGE>
hostilities involving the United States or the declaration by the United
States of a national emergency or war, if the effect of any such event
specified in this Clause (iv) in the judgment of the Representatives makes
it impracticable or inadvisable to proceed with the public offering or the
delivery of the Shares being delivered at such Time of Delivery on the
terms and in the manner contemplated in the Prospectus;
(i) The Shares to be sold at such Time of Delivery shall have been
duly listed for quotation on Nasdaq;
(j) The Company shall have obtained and delivered to the Underwriters
executed copies of Lock-Up Agreements, substantially in the form of Annex
III hereto, from each of the persons listed in Annex IV hereto;
(k) The Company shall have complied with the provisions of Section
5(c) hereof with respect to the furnishing of prospectuses on the New York
Business Day next succeeding the date of this Agreement; and
(l) The Company shall have furnished or caused to be furnished to you
at such Time of Delivery certificates of officers of the Company
satisfactory to you as to the accuracy of the representations and
warranties of the Company herein at and as of such Time of Delivery, as to
the performance by the Company of all of its obligations hereunder to be
performed at or prior to such Time of Delivery, as to the matters set forth
in subsections (a) and (f) of this Section and as to such other matters as
you may reasonably request.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in any
Preliminary Prospectus, the
16
<PAGE>
Registration Statement or the Prospectus or any such amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by such Underwriter through Goldman, Sachs & Co. expressly for use
therein; and will reimburse the Company for any legal or other expenses
reasonably incurred by the Company in connection with investigating or defending
any such action or claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. No indemnifying party shall, without the
written consent of the indemnified party, effect the settlement or compromise
of, or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law or if the indemnified party failed to give the notice required under
subsection (c) above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged
17
<PAGE>
omission to state a material fact relates to information supplied by the Company
on the one hand or the Underwriters on the other and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company and the Underwriters agree that it would
not be just and equitable if contributions pursuant to this subsection (d) were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
subsection (d). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company and to each
person, if any, who controls the Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery, you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six hours
after such default by any Underwriter you do not arrange for the purchase of
such Shares, then the Company shall be entitled to a further period of thirty-
six hours within which to procure another party or other parties satisfactory to
you to purchase such Shares on such terms. In the event that, within the
respective prescribed periods, you notify the Company that you have so arranged
for the purchase of such Shares, or the Company notifies you that it has so
arranged for the purchase of such Shares, you or the Company shall have the
right to postpone such Time of Delivery for a period of not more than seven
days, in order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby be
made necessary. The term "Underwriter" as used in this Agreement shall include
any person substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-eleventh of the aggregate number of all
the Shares to be purchased at such Time of Delivery, then the Company shall
18
<PAGE>
have the right to require each non-defaulting Underwriter to purchase the number
of shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one-eleventh of the aggregate number of all the
Shares to be purchased at such Time of Delivery, or if the Company shall not
exercise the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters,
then this Agreement (or, with respect to the Second Time of Delivery, the
obligations of the Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company, except for the expenses to be borne
by the Company and the Underwriters as provided in Section 6 hereof and the
indemnity and contribution agreements in Section 8 hereof; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Underwriter except as
provided in Sections 6 and 8 hereof; but, if for any other reason, any Shares
are not delivered by or on behalf of the Company as provided herein, the Company
will reimburse the Underwriters through you for all out-of-pocket expenses
approved in writing by you, including fees and disbursements of counsel,
reasonably incurred by the Underwriters in making preparations for the purchase,
sale and delivery of the Shares not so delivered, but the Company shall then be
under no further liability to any Underwriter except as provided in Sections 6
and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 32 Old Slip, 9th Floor, New York, New York 10005, Attention: Registration
Department; and if to the Company shall be delivered or sent by mail to the
address of the Company set forth in the Registration Statement, Attention:
Secretary; provided, however, that any notice to an Underwriter pursuant to
Section 8(c) hereof shall be delivered or sent by mail, telex or facsimile
transmission to such Underwriter at its address set forth in its Underwriters'
Questionnaire, or telex constituting such Questionnaire, which address will be
supplied to the
19
<PAGE>
Company by you upon request. Any such statements, requests, notices or
agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and, to the extent provided in Sections 8 and
10 hereof, the officers and directors of the Company and each person who
controls the Company or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
If the foregoing is in accordance with your understanding, please sign and
return to us one for the Company and each of the Representatives plus one for
each counsel counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement between each of the Underwriters and the Company.
It is understood that your acceptance of this letter on behalf of each of the
Underwriters is pursuant to the authority set forth in a form of Agreement among
Underwriters, the form of which shall be submitted to the Company for
examination upon request, but without warranty on your part as to the authority
of the signers thereof.
Very truly yours,
Northpoint Communications Holdings, Inc.
By:
-----------------------------------------
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.
Morgan Stanley & Co. Incorporated
Credit Suisse First Boston Corporation
By:
-----------------------------------
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
20
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Number of Optional
Shares to be
Total Number of Purchased if
Firm Shares Maximum Option
Underwriter to be Purchased Exercised
- ---------------------------------------------------------------- ------------------ --------------------
<S> <C> <C>
Goldman, Sachs & Co.............................................
Morgan Stanley & Co.............................................
Credit Suisse First Boston Corporation..........................
------------------ --------------------
Total................................................
================== ====================
</TABLE>
21
<PAGE>
ANNEX I
Pursuant to Section 7(e) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect
to the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules (and, if applicable, financial
forecasts and/or pro forma financial information) examined by them and
included in the Prospectus or the Registration Statement comply as to form
in all material respects with the applicable accounting requirements of the
Act and the related published rules and regulations thereunder; and, if
applicable, they have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited consolidated interim financial statements, selected financial
data, pro forma financial information, financial forecasts and/or condensed
financial statements derived from audited financial statements of the
Company for the periods specified in such letter, as indicated in their
reports thereon, copies of which have been furnished to the representatives
of the Underwriters (the "Representatives");
(iii) They have made a review in accordance with standards established
by the American Institute of Certified Public Accountants of the unaudited
condensed consolidated statements of income, consolidated balance sheets
and consolidated statements of cash flows included in the Prospectus as
indicated in their reports thereon copies of which have been separately
furnished to the Representatives and on the basis of specified procedures
including inquiries of officials of the Company who have responsibility for
financial and accounting matters regarding whether the unaudited condensed
consolidated financial statements referred to in paragraph (vi)(A)(i) below
comply as to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations,
nothing came to their attention that cause them to believe that the
unaudited condensed consolidated financial statements do not comply as to
form in all material respects with the applicable accounting requirements
of the Act and the related published rules and regulations;
(iv) The unaudited selected financial information with respect to the
consolidated results of operations and financial position of the Company
for the five most recent fiscal years included in the Prospectus agrees
with the corresponding amounts (after restatements where applicable) in the
audited consolidated financial statements for such five fiscal years which,
if applicable, were included or incorporated by reference in the Company's
Annual Reports on Form 10-K for such fiscal years;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and on
the basis of limited procedures specified in such letter nothing came to
their attention as a result of the foregoing procedures that caused them to
believe that this information does not conform in all material respects
with the disclosure requirements of Items 301, 302, 402 and 503(d),
respectively, of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
<PAGE>
financial statements of the Company and its subsidiaries, inspection of the
minute books of the Company and its subsidiaries since the date of the
latest audited financial statements included in the Prospectus, inquiries
of officials of the Company and its subsidiaries responsible for financial
and accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused them
to believe that:
(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the Act and
the related published rules and regulations, or (ii) any material
modifications should be made to the unaudited condensed consolidated
statements of income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus for them to be in
conformity with generally accepted accounting principles;
(B) any other unaudited income statement data and balance sheet
items included in the Prospectus do not agree with the corresponding
items in the unaudited consolidated financial statements from which
such data and items were derived, and any such unaudited data and
items were not determined on a basis substantially consistent with
the basis for the corresponding amounts in the audited consolidated
financial statements included in the Prospectus;
(C) the unaudited financial statements which were not included in
the Prospectus but from which were derived any unaudited condensed
financial statements referred to in Clause (A) and any unaudited
income statement data and balance sheet items included in the
Prospectus and referred to in Clause (B) were not determined on a
basis substantially consistent with the basis for the audited
consolidated financial statements included in the Prospectus;
(D) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the
Act and the published rules and regulations thereunder or the pro
forma adjustments have not been properly applied to the historical
amounts in the compilation of those statements;
(E) as of a specified date not more than five days prior to the
date of such letter, there have been any changes in the consolidated
capital stock (other than issuances of capital stock upon exercise of
options and stock appreciation rights, upon earn-outs of performance
shares and upon conversions of convertible securities, in each case
which were outstanding on the date of the latest financial statements
included in the Prospectus) or any increase in the consolidated long-
term debt of the Company and its subsidiaries, or any decreases in
consolidated net current assets or stockholders' equity or other
items specified by the Representatives, or any increases in any items
specified by the Representatives, in each case as compared with
amounts shown in the latest balance sheet included in the Prospectus,
except in each case for changes, increases or decreases which the
Prospectus discloses have occurred or may occur or which are
described in such letter; and
F-2
<PAGE>
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred
to in Clause (E) there were any decreases in consolidated net
revenues or operating profit or the total or per share amounts of
consolidated net income or other items specified by the
Representatives, or any increases in any items specified by the
Representatives, in each case as compared with the comparable period
of the preceding year and with any other period of corresponding
length specified by the Representatives, except in each case for
decreases or increases which the Prospectus discloses have occurred
or may occur or which are described in such letter; and
(vii) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraphs (iii) and
(vi) above, they have carried out certain specified procedures, not
constituting an examination in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information specified by the Representatives, which are derived from the
general accounting records of the Company and its subsidiaries, which
appear in the Prospectus, or in Part II of, or in exhibits and schedules
to, the Registration Statement specified by the Representatives, and have
compared certain of such amounts, percentages and financial information
with the accounting records of the Company and its subsidiaries and have
found them to be in agreement.
F-3
<PAGE>
ANNEX II
[Forms of opinions of counsel to be attached.]
<PAGE>
ANNEX III
[Form of Lock-Up Agreement]
<PAGE>
ANNEX IV
[List of Stockholders to sign Lock-Up Agreements]
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NORTHPOINT COMMUNICATIONS HOLDINGS, INC.
The undersigned, Michael Malaga and Steven Gorosh, hereby certify that:
1. They are the duly elected and acting President and Secretary,
respectively, of NorthPoint Communications Holdings, Inc., a Delaware
corporation.
2. The Certificate of Incorporation of this corporation was originally
filed with the Secretary of State of Delaware on February 1, 1999.
3. The Certificate of Incorporation of this corporation shall be amended
and restated to read in full as follows:
ARTICLE I
"The name of this corporation is NorthPoint Communications Holdings, Inc.
(the "Corporation").
-----------
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 9 East Loockerman Street, Dover, County of Kent, 19901. The name of its
registered agent at such address is National Registered Agents, Inc.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
(A) Classes of Stock. The Corporation is authorized to issue two classes
----------------
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
------------ ---------------
The total number of shares which the Corporation is authorized to issue is
170,000,000 shares, each with a par value of $0.001 per share, of which
125,000,000 shares shall be Common Stock and 45,000,000 shares shall be
Preferred Stock. 8,000,000 shares of the Common Stock authorized to be issued
are hereby designated as "Class B Common Stock."
--------------------
<PAGE>
(B) Rights, Preferences and Restrictions of Preferred Stock. The Preferred
-------------------------------------------------------
Stock authorized by this Amended and Restated Certificate of Incorporation may
be issued from time to time in one or more series. The first series of
Preferred Stock shall be designated "Series B Preferred Stock" and shall consist
------------------------
of 17,563,187 shares. The second series of Preferred Stock shall be designated
"Series C Preferred Stock" and shall consist of 18,198,413 shares. The third
- -------------------------
series of Preferred Stock shall be designated "Series D Preferred Stock" and
------------------------
shall consist of 3,640,000 shares. The fourth series of Preferred Stock shall
be designated "Series D-1 Preferred Stock" and shall consist of 3,640,000
--------------------------
shares.
The Board of Directors is authorized, subject to limitations
prescribed by law and the provisions of this Article IV, to provide for the
issuance of Preferred Stock in series, and by filing a certificate pursuant to
the applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in each such series, and to fix the designation,
powers, preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions thereof.
The authority of the Board of Directors with respect to each series
shall include, but not be limited to, determination of the following:
(1) The number of shares constituting that series and the distinctive
designation of that series;
(2) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that series;
(3) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
(4) Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provision for adjustment
of the conversion rate in such events as the Board of Directors shall determine;
(5) Whether or not the shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under different conditions and at
different redemption dates;
(6) Whether that series shall have a sinking fund for the redemption
or purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
(7) The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of this Corporation, and
the relative rights of priority, if any, of payment of shares of that series;
and
2
<PAGE>
(8) Any other relative rights, preferences and limitations of that
series.
The rights, preferences, privileges and restrictions granted to and imposed
on the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series D-1 Preferred Stock are as set forth below in this Article
IV(B). Unless stated otherwise herein, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series D-1 Preferred Stock shall
be referred to collectively as "Preferred Stock."
---------------
1. Dividend Provisions. The holders of shares of Series B Preferred
-------------------
Stock shall be entitled to receive non-cumulative dividends and the holders of
shares of Series C Preferred Stock, Series D Preferred Stock and Series D-1
Preferred Stock shall be entitled to receive cumulative dividends, out of any
assets legally available therefor, prior and in preference to any declaration or
payment of any dividend (payable other than in Common Stock or other securities
and rights convertible into or entitling the holder thereof to receive, directly
or indirectly, additional shares of Common Stock of the Corporation) on the
Common Stock of the Corporation, at a rate equal to the greater of (i) $0.08 per
share (adjusted to reflect subsequent stock dividends, stock splits,
recapitalizations or similar transactions) in the case of the Series B Preferred
Stock, $0.4236 per share (adjusted to reflect subsequent stock dividends, stock
splits, recapitalizations or similar transactions) in the case of the Series C
Preferred Stock, $2.64 per share (adjusted to reflect subsequent stock
dividends, stock splits, recapitalizations or similar transactions) in the case
of the Series D Preferred Stock, or $2.64 per share (adjusted to reflect
subsequent stock dividends, stock splits, recapitalizations or similar
transactions) in the case of the Series D-1 Preferred Stock, or (ii) a per share
amount equal to the per share amount paid on any other outstanding shares of
capital stock of the Corporation (on an as-converted basis), per annum from and
including the date of issuance of such share on each outstanding share of Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series
D-1 Preferred Stock, payable (x) in the case of the Series B Preferred Stock,
when, as and if declared by the Board of Directors, and (y) in the case of the
Series C Preferred Stock, Series D Preferred Stock and Series D-1 Preferred
Stock, upon any liquidation, dissolution or winding up of the Corporation or,
prior to any such liquidation, dissolution or winding up, when, as and if
declared by the Board of Directors. Such dividends on the Series C Preferred
Stock, Series D Preferred Stock and Series D-1 Preferred Stock shall accrue
whether or not they have been declared by the Board of Directors and whether or
not there are profits, surplus or other funds of the Corporation legally
available for the payment of dividends. The date on which the Corporation
initially issues any shares of Preferred Stock will be deemed to be its "date of
-------
issuance" regardless of the number of times transfer of such shares is made on
- --------
the stock records maintained by or for the Corporation and regardless of the
number of certificates which may be issued to evidence such shares. Unless all
dividends on the outstanding shares of Preferred Stock that shall have accrued
and become payable as of any date shall have been paid, or declared and funds
set apart for payment thereof, no dividend or other distribution (payable other
than in shares of Common Stock) shall be paid to the holders of Common Stock and
no shares of Common Stock shall be purchased, redeemed or otherwise acquired by
the Corporation or any of its subsidiaries (except by conversion into or
exchange for Common Stock), nor shall any monies be paid or made available for a
purchase, redemption or sinking fund for the purchase or redemption of any
Common Stock; provided, however, that this restriction shall not apply to the
-------- -------
repurchase of
3
<PAGE>
shares of Common Stock from employees, officers, directors, consultants or
other persons performing services for the Company or any subsidiary pursuant
to agreements under which the Company has the option to repurchase such shares
at cost upon the occurrence of certain events, such as the termination of
employment. No interest, or sum of money in lieu of interest, shall be payable
in respect of any dividend payment or payments on the Common Stock which may
be in arrears.
2. Liquidation.
-----------
(a) Series D, D-1 and C Preference. In the event of any liquidation,
------------------------------
dissolution or winding up of the Corporation, either voluntary or involuntary,
the holders of the Series D Preferred Stock, Series D-1 Preferred Stock and
Series C Preferred Stock shall be entitled to receive, on a pari passu basis
(based on the amount of the respective aggregate liquidation preference for all
outstanding shares of each such series) prior and in preference to any payment
of cash or distribution of any of the assets of the Corporation to the holders
of Series B Preferred Stock or Common Stock by reason of their ownership thereof
an amount equal to the greater of (i) (A) $22.00 per share, in the case of the
Series D Preferred Stock, (B) $22.00 per share, in the case of the Series D-1
Preferred Stock, and (C) $ 3.53 per share, in the case of the Series C Preferred
Stock, in each case as adjusted to reflect subsequent stock dividends, stock
splits, recapitalizations or similar transactions, for each share of Series D
Preferred Stock, Series D-1 Preferred Stock or Series C Preferred Stock then
held by them, respectively, and (ii) the amount per share that the holders of
the Series D Preferred Stock, Series D-1 Preferred Stock and Series C Preferred
Stock would have received had they converted their shares of Series D Preferred
Stock, Series D-1 Preferred Stock and Series C Preferred Stock, respectively,
into Common Stock immediately prior to such liquidation, dissolution or winding
up of the Corporation, plus in each case, only to the extent that the proceeds
to the holders of preferred stock by reason of their ownership thereof from any
liquidation, dissolution or winding up of the Corporation are less than (i)
$66.00 per share, in the case of the Series D Preferred Stock, (ii) $66.00 per
share, in the case of the Series D-1 Preferred Stock, or (iii) $10.59 per share,
in the case of the Series C Preferred Stock, in each case as adjusted to reflect
subsequent stock dividends, stock splits, recapitalizations or similar
transactions, an additional amount equal to any accrued but unpaid dividends on
the Series D Preferred Stock, Series D-1 Preferred Stock or Series C Preferred
Stock, respectively. If, upon the occurrence of such event, the assets and
funds thus distributed among the holders of the Series C Preferred Stock, Series
D Preferred Stock and Series D-1 Preferred Stock shall be insufficient to permit
the payment to such holders of the full aforesaid preferential amounts, then the
entire assets and funds of the Corporation legally available for distribution
shall be distributed ratably among the holders of the Series C Preferred Stock,
Series D Preferred Stock and Series D-1 Preferred Stock.
(b) Series B Preference. After payment or setting apart for payment
-------------------
of the distributions required by Section 2(a) above, the holders of the Series B
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the remaining assets of the Corporation to the holders of
Common Stock by reason of their ownership thereof an amount equal to $0.67417772
per share (as adjusted to reflect subsequent stock dividends, stock splits,
recapitalizations or similar transactions) for each share of Series B Preferred
Stock
4
<PAGE>
then held by them, plus declared but unpaid dividends on the Series B
Preferred Stock. If the remaining assets and funds thus distributed among the
holders of the Series B Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amounts, then the
entire remaining assets and funds of the Corporation legally available for
distribution shall be distributed ratably among the holders of the Series B
Preferred Stock.
(c) Remaining Assets. Upon the completion of the distributions
----------------
required by Sections 2(a) and (b) above, if assets and funds remain in the
Corporation, the holders of the Common Stock of the Corporation shall receive
all of the remaining assets of the Corporation in proportion to their ownership
of shares of Common Stock.
(d) Certain Acquisitions.
--------------------
(i) Deemed Liquidation. For purposes of this Section 2, a
------------------
liquidation, dissolution or winding up of the Corporation shall be deemed to be
occasioned by, or to include, (A) the acquisition of a majority of the capital
stock or voting power of the Corporation 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); or
(B) a sale, exchange or other disposition of all or substantially all of the
assets of the Corporation, unless the Corporation's stockholders of record as
------
constituted immediately prior to such acquisition or sale will, immediately
after such acquisition or sale (by virtue of securities issued as consideration
for the Corporation's acquisition or sale or otherwise) hold more than 50% of
the voting power of the surviving or acquiring entity in approximately the same
relative percentages after such acquisition or sale as before such acquisition
or sale (each such event, a "Liquidity Event").
---------------
(ii) Valuation of Consideration. For all purposes under this
--------------------------
Amended and Restated Certificate of Incorporation, if the consideration
received by the Corporation is other than cash, its value will be deemed its
fair market value. Any securities shall be valued as follows:
(A) Securities not subject to investment letter or other
similar restrictions on free marketability:
(1) If traded on a securities exchange or the Nasdaq
National Market, the value shall be deemed to be the average of the closing
prices of the securities on such exchange over the thirty-day period ending
three days prior to the closing;
(2) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale prices (whichever
is applicable) over the thirty-day period ending three days prior to the
closing; and
(3) If there is no active public market, the value
shall be the fair market value thereof, as mutually determined by the
Corporation and the holders of (i) at least a majority of the voting power of
all then outstanding shares of Series D Preferred Stock, (ii) at least a
majority of the voting power of all then outstanding shares of Series D-1
5
<PAGE>
Preferred Stock, (iii) at least 66 2/3% of the voting power of all then
outstanding shares of Series C Preferred Stock, and (iv) at least a majority
of the voting power of all then outstanding shares of Series B Preferred
Stock; provided, however, that if the Corporation and such holders do not
-------- -------
agree on the fair market value of such securities within 30 days of the date
such securities are received by the Corporation, the Corporation shall appoint
an independent qualified appraiser reasonably acceptable to the Company and
such holders to determine the fair market value of such securities.
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an
affiliate or former affiliate) shall be to make an appropriate discount from
the market value determined as above in Section 2(d)(ii)(A) to reflect the
approximate fair market value thereof, as mutually determined by the
Corporation and the holders of (i) at least a majority of the voting power of
all then outstanding shares of Series D Preferred Stock, (ii) at least a
majority of the voting power of all then outstanding shares of Series D-1
Preferred Stock, (iii) at least 66 2/3% of the voting power of all then
outstanding shares of Series C Preferred Stock, and (iv) at least a majority
of the voting power of all then outstanding shares of Series B Preferred
Stock; provided, however, that if the Corporation and such holders do not
-------- -------
agree on the fair market value of such securities within 30 days of the date
such securities are received by the Corporation, the Corporation shall appoint
an independent qualified appraiser reasonably acceptable to the Company and
such holders to determine the fair market value of such securities.
(iii) Notice of Transaction. The Corporation shall give each
---------------------
holder of record of Preferred Stock written notice of such impending
transaction not later than 20 days prior to the stockholders' meeting called
to approve such transaction, or 20 days prior to the closing of such
transaction, whichever is earlier, and shall also notify such holders in
writing of the final approval of such transaction. The first of such notices
shall describe the material terms and conditions of the impending transaction
and the provisions of this Section 2, and the Corporation shall thereafter
give such holders prompt notice of any material changes. The transaction shall
in no event take place sooner than 20 days after the Corporation has given the
first notice provided for herein or sooner than 10 days after the Corporation
has given notice of any material changes provided for herein; provided,
--------
however, that such periods may be shortened upon the written consent of the
- -------
holders of Preferred Stock that are entitled to such notice rights or similar
notice rights and that represent at least a majority of the voting power of
all then outstanding shares of such Preferred Stock. Nothing herein shall be
deemed to limit any right of approval that any holder of Preferred Stock may
have hereunder or otherwise.
(iv) Effect of Noncompliance. In the event the requirements of
-----------------------
this Section 2(d) are not complied with, the Corporation shall forthwith
either cause the closing of the transaction to be postponed until such
requirements have been complied with, or cancel such transaction, in which
event the rights, preferences and privileges of the holders of the Preferred
Stock shall revert to and be the same as such rights, preferences and
privileges existing immediately prior to the date of the first notice referred
to in Section 2(d)(iii) hereof.
6
<PAGE>
3. Redemption. The Preferred Stock is not redeemable.
----------
4. Conversion. The holders of the Preferred Stock shall have
----------
conversion rights as follows (the "Conversion Rights"):
-----------------
(a) Right to Convert.
----------------
(i) Subject to Section 4(c), each share of Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall
be convertible, at the option of the holder thereof, at any time after the
date of issuance of such share, at the office of the Corporation or any
transfer agent for such stock, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing (i)
$0.67417772 in the case of the Series B Preferred Stock, (ii) $3.53 in the
case of the Series C Preferred Stock, and (iii) $22.00 in the case of the
Series D Preferred Stock, by the Conversion Price applicable to such share,
determined as hereafter provided, in effect on the date the certificate is
surrendered for conversion.
(ii) Subject to Section 4(c), each share of Series D-1
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time beginning one year after the date on which a share of Series D-1
Preferred Stock was first issued, at the office of the Corporation or any
transfer agent for such stock, into one fully paid and nonassessable share of
Series D Preferred Stock, so long as, after giving effect to such conversion,
the total number of shares of the Corporation's capital stock entitled to vote
in any election of directors of the Corporation (the "Voting Shares") held by
-------------
such holder, together with all of its Affiliates, shall be less than 10% (by
voting power) of the total number of Voting Shares then issued and
outstanding. No conversion of shares of Series D-1 Preferred Stock shall be
effected pursuant to this subsection to the extent that it would have the
effect of giving the holder, together with all of its Affiliates, an aggregate
number of Voting Shares equal to or greater than 10% (by voting power) of the
total number of Voting Shares then issued and outstanding. For the purposes of
this Article, the term "Affiliate" shall mean, as to any person or entity,
---------
a person or entity that, directly or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control
with, such person or entity.
(iii) Subject to Section 4(c), each share of Series D-1
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time beginning one year after the date on which a share of Series D-1
Preferred Stock was first issued, at the office of the Corporation or any
transfer agent for such stock, into such number of fully paid and
nonassessable shares of Class B Common Stock as is determined by dividing
$22.00 by the Conversion Price applicable to such share, determined as
hereafter provided, in effect on the date the certificate is surrendered for
conversion
(iv) Subject to Section 4(c), each share of Class B
Common Stock shall be convertible, at the option of the holder thereof, at any
time beginning one year after the earlier of (i) the date on which a share of
Series D-1 Preferred Stock was first issued, or (ii) the closing of a firm
commitment underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, which results in
aggregate
7
<PAGE>
cash proceeds to the Corporation of at least $50,000,000 (net of underwriting
discounts and commissions), at the office of the Corporation or any transfer
agent for such stock, into one fully paid and nonassessable share of Common
Stock, so long as, after giving effect to such conversion, the total number of
Voting Shares held by such holder, together with all of its Affiliates, shall
be less than 10% (by voting power) of the total number of Voting Shares then
issued and outstanding. No conversion of shares of Class B Common Stock shall
be effected pursuant to this subsection to the extent that it would have the
effect of giving the holder, together with all of its Affiliates, an aggregate
number of Voting Shares equal to or greater than 10% (by voting power) of the
total number of Voting Shares then issued and outstanding.
(v) The initial Conversion Price per share shall be (i)
$0.67417772 per share of Series B Preferred Stock, (ii) $3.53 per share of
Series C Preferred Stock, (iii) $22.00 per share of Series D Preferred Stock,
and (iv) $22.00 per share of Series D-1 Preferred Stock. Such initial
Conversion Prices shall be subject to adjustment as set forth in Section 4(d).
(b) Automatic Conversion.
--------------------
(i) Each share of Series D Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect for such share immediately upon the earlier of (i) the
Corporation's sale of its Common Stock in a firm commitment underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, and which results in aggregate cash
proceeds to the Corporation of at least $50,000,000 (net of underwriting
discounts and commissions) or (ii) with the consent of the Company, the date
specified by written consent or agreement of the holders of at least a
majority of the then outstanding shares of Series D Preferred Stock, voting
together as a class. If, as a result of any transaction or event, a holder of
Series D Preferred Stock, together with all of its Affiliates, would hold 10%
or more (by voting power) of the total number of Voting Shares then issued and
outstanding, then the number of shares of Series D Preferred Stock held by
such holder of Series D Preferred Stock, if any, that would reduce the total
number of Voting Shares held by such holder of Series D Preferred Stock,
together with all of its Affiliates, to less than 10% (by voting power) of the
total number of Voting Shares then issued and outstanding shall be
automatically converted into the identical number of shares of Series D-1
Preferred Stock. Such conversion shall be deemed to have occurred immediately
prior to the transaction or events that would otherwise increase the Voting
Shares held by such holder of Series D Preferred Stock, together with all of
its Affiliates, to 10% or more of total number of Voting Shares.
(ii) Each share of Series D-1 Preferred Stock shall
automatically be converted into one share of Series D Preferred Stock
immediately upon the earlier of (i) except as provided below in Section 4(c),
the Corporation's sale of its Common Stock, Preferred Stock or debt securities
in a private equity or debt financing and which results in aggregate cash
proceeds to the Corporation of at least $50,000,000 (net of underwriting
discounts and commissions) (other than any sale by the Corporation to a third
party of the Corporation's equity or debt securities in a transaction that
includes a contract for commercial services between
8
<PAGE>
the Corporation and such third party or any sale of Series D-1 Preferred Stock
or Series D Preferred Stock by the Corporation) or (ii) with the consent of
the Company, the date specified by written consent or agreement of the holders
of at least a majority of the then outstanding shares of Series D-1 Preferred
Stock, voting together as a class. Each share of Series D-1 Preferred Stock
shall automatically be converted into the identical number of fully paid and
nonassessable shares of Series D Preferred Stock immediately upon any sale,
disposition, assignment or transfer (each, a "Transfer") of any shares of
--------
Series D-1 Preferred Stock by the original holder thereof after one year from
the date on which a share of Series D-1 Preferred Stock was first issued,
other than a Transfer to an Affiliate and subject to the last sentence of
subsection 4(a)(i).
(iii) Each share of Series D-1 Preferred Stock shall
automatically be converted into shares of Class B Common Stock at the
Conversion Price at the time in effect for such share immediately upon, except
as provided below in Section 4(c), the Corporation's sale of its Common Stock
in a firm commitment underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, and which
results in aggregate cash proceeds to the Corporation of at least $50,000,000
(net of underwriting discounts and commissions).
(iv) Each share of Series C Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect for such share immediately upon the earlier of (i)
except as provided below in Section 4(c), the Corporation's sale of its Common
Stock in a firm commitment underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
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
Corporation of at least $50,000,000 (net of underwriting discounts and
commissions) or (ii) the date specified by written consent or agreement of the
holders of at least 66 2/3% of the then outstanding shares of Series C
Preferred Stock, voting together as a class.
(v) Each share of Series B Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect for such share immediately upon the earlier of (i)
except as provided below in Section 4(c), the Corporation's sale of its Common
Stock in a firm commitment underwritten public offering pursuant to a
registration statement under the Securities Act of 1933, as amended, the
public offering price of which is not less than $3.53 per share (adjusted to
reflect subsequent stock dividends, stock splits, recapitalizations or similar
transactions) and which results in aggregate cash proceeds to the Corporation
of at least $15,000,000 (net of underwriting discounts and commissions) or
(ii) the date specified by written consent or agreement of the holders of at
least a majority of the then outstanding shares of Series B Preferred Stock,
voting together as a class.
(vi) Each share of Class B Common Stock shall
automatically be converted into the identical number of fully paid and
nonassessable shares of Common Stock immediately upon any Transfer of any
shares of Class B Common Stock by the original holder
9
<PAGE>
thereof after one year from the earlier of (i) the date on which a share of
Series D-1 Preferred Stock was first issued, or (ii) the closing of a firm
commitment underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, which results in
aggregate cash proceeds to the Corporation of at least $50 million (net of
underwriting discounts and commissions), other than a Transfer to an
Affiliate.
(vii) Promptly after the occurrence of any of the events
described in Sections 4(b)(i), (ii), (iii), (iv), (v) or (vi) hereof, the
Corporation shall give written notice of the automatic conversion of the
shares of Series D Preferred Stock, shares of Series D-1 Preferred Stock,
shares of Series C Preferred Stock, shares of Series B Preferred Stock and
shares of Class B Common Stock, as the case may be, to each holder of record
thereof.
(viii) The Corporation shall, as soon as practicable after
the occurrence of any of the events described in Sections 4(b)(i), (ii),
(iii), (iv), (v) or (vi) hereof, issue and deliver at the office of the
Corporation to the holders of record of the shares of Series D Preferred
Stock, shares of Series D-1 Preferred Stock, shares of Series C Preferred
Stock, shares of Series B Preferred Stock or shares of Class B Common Stock,
as the case may be, or to the nominee or nominees of such holders, a
certificate or certificates for the number of shares of Common Stock, Class B
Common Stock or Series D Preferred Stock to which such holder shall be
entitled as aforesaid, whereupon such holder shall surrender the certificate
or certificates for such shares of Preferred Stock, duly endorsed, at the
office of the Corporation or of any transfer agent for the Preferred Stock;
notwithstanding the foregoing, the failure of the Corporation to deliver any
certificate or certificates for such shares of Common Stock, Class B Common
Stock or Series D Preferred Stock shall not affect the effectiveness or
validity of any conversion of shares of Preferred Stock pursuant to Section
4(b) hereof and, upon the occurrence of any of the events described in
Sections 4(b)(i), (ii), (iii), (iv) or (v) hereof, the certificates for the
shares of Series D Preferred Stock, shares of Series D-1 Preferred Stock,
shares of Series C Preferred Stock, shares of Series B Preferred Stock or
shares of Class B Common Stock, as the case may be, shall be deemed to
represent the shares of Common Stock, Class B Common Stock or Series D
Preferred Stock to which such holder shall be entitled as aforesaid.
(ix) If, as a result of any transaction or event
occurring within three years after the date on which a share of Series D-1
Preferred Stock was issued, unless such transaction or event is approved by
the Board of Directors of the Corporation, an original holder of Series D-1
Preferred Shares, together with all of its Affiliates, would hold 10% or more
(by voting power) of the total number of Voting Shares then issued and
outstanding, then the number of shares of Common Stock held by such original
holder of Series D-1 Preferred Stock that would reduce the total number of
Voting Shares held by such original holder of Series D-1 Preferred Stock,
together with all of its Affiliates, to less than 10% (by voting power) of the
total number of Voting Shares then issued and outstanding shall be
automatically converted into the identical number of shares of Class B Common
Stock. Such conversion shall be deemed to have occurred immediately prior to
the transaction or event that would otherwise increase the Voting Shares held
by such original holder of Series D-1 Preferred Stock, together with all of
its Affiliates, to 10% or more of the total number of Voting Shares.
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<PAGE>
(c) Mechanics of Conversion. Before any holder of Preferred Stock
-----------------------
shall be entitled to convert the same into shares of Common Stock, Class B
Common Stock or Series D Preferred Stock pursuant to Section 4(a) hereof, he or
she shall surrender the certificate or certificates therefor, duly endorsed, at
the office of the Corporation or of any transfer agent for the Preferred Stock,
and shall give written notice to the Corporation at its principal corporate
office, of the election to convert the same and shall state therein the name or
names in which the certificate or certificates for shares of Common Stock, Class
B Common Stock or Series D Preferred Stock are to be issued. The Corporation
shall, as soon as practicable thereafter, issue and deliver at such office to
such holder of Preferred Stock, or to the nominee or nominees of such holder, a
certificate or certificates for the number of shares of Common Stock, Class B
Common Stock or Series D Preferred Stock to which such holder shall be entitled
as aforesaid. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock, Class B Common Stock or Series D Preferred Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock, Class B Common Stock or Series
D Preferred Stock as of such date. If the conversion is in connection with an
underwritten offering of securities registered pursuant to the Securities Act of
1933, as amended, the conversion may, at the option of any holder tendering
Preferred Stock for conversion, be conditioned upon the closing with the
underwriters of the sale of securities pursuant to such offering, in which event
the person(s) entitled to receive Common Stock, Class B Common Stock or Series D
Preferred Stock upon conversion of such Preferred Stock shall not be deemed to
have converted such Preferred Stock until immediately prior to the closing of
such sale of securities.
(d) Conversion Price Adjustments of Preferred Stock for Certain
-----------------------------------------------------------
Dilutive Issuances, Splits and Combinations. The Conversion Prices of the
- -------------------------------------------
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series D-1 Preferred Stock shall be subject to adjustment from time to time as
follows:
(i) Issuance of Additional Stock below Conversion Price. If the
---------------------------------------------------
Corporation shall issue, after the date of filing of this Amended and Restated
Certificate of Incorporation (the "Purchase Date"), any Additional Stock (as
-------------
defined below) without consideration or for a consideration per share less than
the Conversion Price for such series in effect immediately prior to the issuance
of such Additional Stock, the Conversion Price for such series in effect
immediately prior to each such issuance shall automatically be adjusted as set
forth in this Section 4(d)(i), unless otherwise provided in this Section
4(d)(i).
(A) Adjustment Formula. Whenever the Conversion Price is
------------------
adjusted pursuant to this Section (4)(d)(i), the new Conversion Price shall be
determined by multiplying the Conversion Price then in effect by a fraction,
(x) the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance (the "Outstanding Common") plus
------------------
the number of shares of Common Stock that the aggregate consideration received
by the Corporation for such issuance would purchase at such Conversion Price;
and (y) the denominator of which shall be the number of shares of Outstanding
Common plus the number of shares of such Additional Stock. For purposes of the
foregoing calculation,
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<PAGE>
the term "Outstanding Common" shall include shares of Common Stock deemed
------------------
issued pursuant to Section 4(d)(i)(E) below.
(B) Definition of "Additional Stock". For purposes of this Section
--------------------------------
4(d)(i), "Additional Stock" shall mean any shares of Common Stock or capital
----------------
stock, securities, options, warrants to purchase or other instruments of similar
effect convertible into or exchangeable for Common Stock issued (or deemed to
have been issued pursuant to Section 4(d)(i)(E)) by the Corporation after the
Purchase Date other than
(1) Common Stock issued pursuant to a transaction described in
Section 4(d)(ii) hereof;
(2) Up to 12,500,000 shares of Common Stock (as adjusted to
reflect subsequent stock dividends, stock splits, recapitalizations or similar
transactions) issuable or issued to employees, consultants or directors of the
Corporation directly or pursuant to a stock option plan or arrangement or
restricted stock plan or arrangement approved by the Board of Directors of the
Corporation, which number of shares shall include all shares issued or
issuable upon exercise of options granted or to be granted under the
Corporation's equity incentive plans;
(3) Capital stock, or options or warrants to purchase capital
stock, issued to financial institutions or lessors in connection with
commercial credit arrangements, equipment financings or similar transactions;
(4) Shares of Common Stock or Preferred Stock issuable upon
exercise of warrants outstanding as of the date of this Amended and Restated
Certificate of Incorporation;
(5) Capital stock or warrants or options to purchase capital stock
issued in connection with bona fide acquisitions, mergers, strategic
relationships or similar transactions, the terms of which are approved by the
Board of Directors of the Corporation;
(6) Shares of Common Stock and Class B Common Stock issued or
issuable upon conversion of the Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock or Series D-1 Preferred Stock; and
(7) Shares of Common Stock issued or issuable in a public offering
prior to or in connection with which all outstanding shares of Series B
Preferred Stock, Series C Preferred Stock and Series D Common Stock will be
converted to Common Stock pursuant to Section 4(b) hereof.
(C) No Fractional Adjustments. No adjustment of the Conversion Price
-------------------------
for the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock or Series D-1 Preferred Stock shall be made in an amount less than one
cent per share, provided that any adjustments which are not required to be made
by reason of this sentence shall
12
<PAGE>
be carried forward and shall be either taken into account in any subsequent
adjustment made prior to three years from the date of the event giving rise to
the adjustment being carried forward, or shall be made at the end of three
years from the date of the event giving rise to the adjustment being carried
forward.
(D) Determination of Consideration. In the case of the issuance of
------------------------------
Common Stock for cash, the consideration shall be deemed to be the amount of
cash paid therefor before deducting any reasonable discounts, commissions or
other expenses allowed, paid or incurred by the Corporation for any underwriting
or otherwise in connection with the issuance and sale thereof. In the case of
the issuance of Common Stock for a consideration in whole or in part other than
cash, the consideration other than cash shall be deemed to be the fair value
thereof as determined by the Board of Directors in accordance with Section
2(d)(ii) irrespective of any accounting treatment.
(E) Deemed Issuances of Common Stock. In the case of the issuance
--------------------------------
(whether before, on or after the applicable Purchase Date) of options to
purchase or rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock or options to purchase or
rights to subscribe for such convertible or exchangeable securities, the
following provisions shall apply for all purposes of this Section 4(d)(i):
(1) The aggregate maximum number of shares of Common Stock
deliverable upon exercise (assuming the satisfaction of any conditions to
exercisability, including without limitation, the passage of time, but without
taking into account potential antidilution adjustments) of such options to
purchase or rights to subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for a consideration
equal to the consideration (determined in the manner provided in Section
4(d)(i)(D)), if any, received by the Corporation upon the issuance of such
options or rights plus the minimum exercise price provided in such options or
rights (without taking into account potential antidilution adjustments) for
the Common Stock covered thereby.
(2) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange (assuming the satisfaction of
any conditions to convertibility or exchangeability, including, without
limitation, the passage of time, but without taking into account potential
antidilution adjustments) for any such convertible or exchangeable securities
or upon the exercise of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time such securities were
issued or such options or rights were issued and for a consideration equal to
the consideration, if any, received by the Corporation for any such securities
and related options or rights (excluding any cash received on account of
accrued interest or accrued dividends), plus the minimum additional
consideration, if any, to be received by the Corporation (without taking into
account potential antidilution adjustments) upon the conversion or exchange of
such securities or the exercise of any related options or rights (the
consideration in each case to be determined in the manner provided in Section
4(d)(i)(D)).
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<PAGE>
(3) In the event of any change in the number of shares of Common Stock
deliverable or in the consideration payable to the Corporation upon exercise of
such options or rights or upon conversion of or in exchange for such convertible
or exchangeable securities, including, but not limited to, a change resulting
from the antidilution provisions thereof, the Conversion Price of each of the
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series D-1 Preferred Stock, to the extent in any way affected by or computed
using such options, rights or securities, shall be recomputed to reflect such
change, but no further adjustment shall be made for the actual issuance of
Common Stock or any payment of such consideration upon the exercise of any such
options or rights or the conversion or exchange of such securities.
(4) Upon the expiration of any such options or rights, the termination
of any such rights to convert or exchange or the expiration of any options or
rights related to such convertible or exchangeable securities, the Conversion
Price of each of the Series B Preferred Stock, Series C Preferred Stock, Series
D Preferred Stock and Series D-1 Preferred Stock, to the extent in any way
affected by or computed using such options, rights or securities or options or
rights related to such securities, shall be recomputed, but only to the extent
the Company did not pay any consideration in connection with such expiration or
termination, to reflect the issuance of only the number of shares of Common
Stock (and convertible or exchangeable securities which remain in effect)
actually issued upon the exercise of such options or rights, upon the conversion
or exchange of such securities or upon the exercise of the options or rights
related to such securities.
(5) The number of shares of Common Stock deemed issued and the
consideration deemed paid therefor pursuant to Sections 4(d)(i)(E)(1) and
4(d)(i)(E)(2) shall be appropriately adjusted to reflect any change, termination
or expiration of the type described in either Section 4(d)(i)(E)(3) or
4(d)(i)(E)(4).
(F) Special Adjustment to Series C Conversion Price. In
-----------------------------------------------
addition to any other adjustments that may be made to the Conversion Price of
the Series C Preferred Stock pursuant to this Section 4(d)(i), in the event
that, prior to February 19, 2004, either (i) the Company has not consummated
an initial public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, 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 Corporation of at least $50,000,000
(net of underwriting discounts and commissions) or (ii) an event of the type
described in Section 2(d)(i) above has not occurred, then, on such date and on
each successive anniversary of such date thereafter until the occurrence of an
event described in subclauses (i) or (ii) of this Section 4(d)(i)(F), the
Conversion Price of the Series C Preferred Stock then in effect shall be
reduced by 15%. If an event described in subclauses (i) or (ii) of this
Section 4(d)(i)(F) occurs on a date after February 19, 2004 that is not an
anniversary of such date, the Conversion Price of the Series C Preferred Stock
then in effect shall be reduced by a pro rata portion of 15% per annum based
on the number of days elapsed in a 365-day year from the date of the last
adjustment in the Conversion Price of the Series C Preferred Stock pursuant to
this Section 4(d)(i)(F).
14
<PAGE>
(G) No Increased Conversion Price. Notwithstanding any other
-----------------------------
provisions of this Section (4)(d)(i), except to the limited extent provided for
in Sections 4(d)(i)(E)(3) and 4(d)(i)(E)(4) and except for any adjustment
pursuant to Section 4(d)(i)(H)(3) in the event of a firm commitment underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, which results in aggregate cash proceeds to
the Corporation of at least $50,000,000, no adjustment of the Conversion Price
pursuant to this Section 4(d)(i) shall have the effect of increasing the
Conversion Price above (i) the Conversion Price in effect immediately prior to
such adjustment or (ii) the initial Conversion Price specified in Section 4(a).
No readjustment pursuant to Sections 4(d)(i)(E)(3) and 4(d)(i)(E)(4) above shall
have the effect of increasing the Conversion Price to an amount which exceeds
the lower of (i) the Conversion Price on the original adjustment date and (ii)
the Conversion Price that would have resulted from the issuance of Additional
Stock between the original adjustment date and such readjustment date.
(H) Special Adjustments to Series D and D-1 Conversion Prices.
---------------------------------------------------------
(1) In addition to any other adjustments that may be made to the
Conversion Prices of the Series D Preferred Stock and the Series D-1 Preferred
Stock pursuant to this Section 4(d)(i), in the event that, on or before the
Series D/D-1 Ratchet Cut-Off Date (as defined below), the Corporation shall
issue any Additional Stock without consideration or for a consideration per
share less than the Conversion Price for such series in effect immediately prior
to the issuance of such Additional Stock (other than pursuant to (I) a firm
commitment underwritten public offering of the Corporation's Common Stock
pursuant to an effective registration statement under the Securities Act of
1933, as amended, which results in aggregate cash proceeds to the Corporation of
at least $50,000,000 (net of underwriting discounts and commissions) or (II) any
sale by the Corporation to a third party of the Corporation's equity securities
in a transaction that includes a contract for commercial services between the
Corporation and such third party entered into in conjunction with the sale of
Series D-1 Preferred Stock or any sale of Series D-1 Preferred Stock or Series D
Preferred Stock by the Corporation), the Conversion Price for such series in
effect immediately prior to each such issuance shall automatically be reduced,
concurrently with such issue, to a price (calculated to the nearest cent)
determined by dividing the aggregate consideration received by the Corporation
for the total number of shares of Additional Stock so issued by the total number
of shares of Additional Stock so issued. For purposes of this Section
4(d)(i)(H), the term "Series D/D-1 Ratchet Cut-Off Date" shall mean the business
day next following the earliest to occur of (i) the closing of a firm commitment
underwritten public offering of the Corporation's Common Stock pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
which results in aggregate cash proceeds to the Corporation of at least
$50,000,000 (net of underwriting discounts and commissions), (ii) the closing of
a private equity financing which results in aggregate cash proceeds to the
Corporation of at least $50,000,000 (net of underwriting discounts and
commissions) (other than any sale by the Corporation to a third party of the
Corporation's equity securities in a transaction that includes a contract for
commercial services between the Corporation and such third party entered into in
conjunction with the sale of Series D-1 Preferred Stock or any sale of Series D-
1 Preferred Stock or Series D Preferred Stock by the
15
<PAGE>
Corporation), such financing occurring after the issuance of the Series D-1
Preferred, and (iii) the closing of a Liquidity Event other than an
underwritten public offering.
(2) In addition to any other adjustments that may be made to the
Conversion Prices of the Series D Preferred Stock and the Series D-1 Preferred
Stock pursuant to this Section 4(d)(i), in the event that, on or before the
Series D/D-1 Ratchet Cut-Off Date (as defined above), the Corporation shall
close a Liquidity Event (other than an underwritten public offering pursuant to
an effective registration statement under the Securities Act) in which the
quotient (the "Liquidity Quotient") obtained by dividing (I) the aggregate value
------------------
received by the Corporation or the holders of the Corporation's capital stock in
such Liquidity Event (excluding options or warrants outstanding at the closing
of such Liquidity Event), by (II) the total number of shares of the
Corporation's Common Stock outstanding on the date of such event on an as-
converted basis (excluding options or warrants outstanding at the closing of
such Liquidity Event), is less than the Conversion Price for such series in
effect immediately prior to such Liquidity Event, then and in such event, the
Conversion Price for such series in effect immediately prior to each such
issuance shall automatically be reduced, immediately prior to the closing of
such Liquidity Event and immediately prior to any conversion pursuant to
Sections 4(a)(i), (ii) or (iii) above, to a price (calculated to the nearest
cent) equal to the Liquidity Quotient.
(3) In addition to any other adjustments that may be made to the
Conversion Prices of the Series D Preferred Stock and the Series D-1 Preferred
Stock pursuant to this Section 4(d)(i), in the event of a firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, which results in aggregate cash
proceeds to the Corporation of at least $50,000,000 (net of underwriting
discounts and commissions), the Conversion Price per share of Series D-1
Preferred Stock and Series D Preferred Stock shall automatically be adjusted,
immediately prior to the closing of such offering, and immediately prior to any
conversion pursuant to Sections 4(b)(i) and (iii), to:
(I) in the event there has been an adjustment to the Conversion
Prices of the Series D Preferred Stock and the Series D-1 Preferred Stock
pursuant to Section 4(d)(i)(H)(1) or (2) prior to the adjustment pursuant to
this clause (4)(d)(i)(H)(3), a price equal to the lesser of (x) the Conversion
Price then in effect, or (y) the lesser of (1) the midpoint of the price range
set forth on the cover page of the prospectus for such underwritten public
offering when such prospectus is first filed with the Securities and Exchange
Commission or (2) the amount equal to 90% multiplied by the price to the
public of shares of the Company's Common Stock in such initial public
offering, or
(II) in the event there has been no adjustment to the Conversion
Prices of the Series D Preferred Stock and the Series D-1 Preferred Stock
pursuant to Section 4(d)(i)(H)(1) or (2) prior to the adjustment pursuant to
this clause 4(d)(i)(H)(3), a price equal to the lesser of (x) the midpoint of
the price range set forth on the
16
<PAGE>
cover page of the prospectus for such underwritten public offering when such
prospectus is first filed with the Securities and Exchange Commission or (y)
the amount equal to 90% multiplied by the price to the public of shares of the
Company's Common Stock in such initial public offering.
(ii) Stock Splits and Dividends. In the event the Corporation
--------------------------
should at any time or from time to time after the Purchase Date fix a record
date for the effectuation of a split or subdivision of the outstanding shares
of Common Stock or the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in additional shares of
Common Stock or other securities or rights convertible into, or entitling the
holder thereof to receive directly or indirectly, additional shares of Common
Stock (hereinafter referred to as "Common Stock Equivalents") without payment
------------------------
of any consideration by such holder for the additional shares of Common Stock
or the Common Stock Equivalents (including the additional shares of Common
Stock issuable upon conversion or exercise thereof), then, as of such record
date (or the date of such dividend distribution, split or subdivision if no
record date is fixed), the Conversion Price of each of the Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series D-1
Preferred Stock shall be appropriately decreased so that the number of shares
of Common Stock issuable on conversion of each share of such series shall be
increased in proportion to such increase of the aggregate of shares of Common
Stock outstanding and those issuable with respect to such Common Stock
Equivalents with the number of shares issuable with respect to Common Stock
Equivalents determined from time to time in the manner provided for deemed
issuances in Section 4(d)(i)(E).
(iii) Reverse Stock Splits. If the number of shares of Common
--------------------
Stock outstanding at any time after the Purchase Date is decreased by a
combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Conversion Price for each of the Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series
D-1 Preferred Stock shall be appropriately increased so that the number of
shares of Common Stock issuable on conversion of each share of such series
shall be decreased in proportion to such decrease in outstanding shares.
(e) Other Distributions. In the event the Corporation shall declare a
-------------------
distribution payable in securities of other persons, evidences of indebtedness
issued by the Corporation or other persons, assets (excluding cash dividends) or
options or rights not referred to in Section 4(d)(i), then, in each such case
for the purpose of this Section 4(e), the holders of Preferred Stock shall be
entitled to a proportionate share of any such distribution as though they were
the holders of the number of shares of Common Stock of the Corporation into
which their shares of Preferred Stock are convertible as of the record date
fixed for the determination of the holders of Common Stock of the Corporation
entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time there
-----------------
shall be a recapitalization, reclassification, combination, subdivision, merger,
transfer, exchange, sale or other disposition of assets, stock split, stock
dividend, reverse stock split or other distribution in respect of the Common
Stock (other than as provided for elsewhere in this Section 4 or in Section 2)
provision shall be made so that the holders of the Series B Preferred Stock,
Series C
17
<PAGE>
Preferred Stock, Series D Preferred Stock and Series D-1 Preferred Stock shall
thereafter be entitled to receive upon conversion of the Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock or Series D-1
Preferred Stock, as the case may be, the number of shares of stock or other
securities or property of the Corporation or otherwise, to which a holder of
Common Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in
the application of the provisions of this Section 4 with respect to the rights
of the holders of the Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series D-1 Preferred Stock after the
recapitalization to the end that the provisions of this Section 4 (including
adjustment of the Conversion Prices then in effect and the number of shares
purchasable upon conversion of the Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series D-1 Preferred Stock)
shall be applicable after that event and be as nearly equivalent as
practicable.
(g) No Impairment. The Corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of Preferred Stock and Class B Common Stock against impairment and
dilution consistent with the terms hereof.
(h) No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------
(i) No fractional shares shall be issued upon the conversion of
any share or shares of Preferred Stock, and the number of shares of Common
Stock to be issued shall be rounded to the nearest whole share. Whether or not
fractional shares are issuable upon such conversion shall be determined on the
basis of the total number of shares of Preferred Stock the holder is at the
time converting into Common Stock and the number of shares of Common Stock
issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of the
Conversion Prices of the Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Series D-1 Preferred Stock pursuant to this Section
4, the Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series D-1 Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (A) such adjustment and readjustment,
(B) the Conversion Price for the Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series D-1 Preferred Stock at the time in
effect, and (C) the number of shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion of a
share of the Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series D-1 Preferred Stock.
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<PAGE>
(i) Notices of Record Date. In the event of any taking by the
----------------------
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Preferred Stock, at least 20 days prior to the date
specified therein, a notice specifying the date on which any such record is to
be taken for the purpose of such dividend, distribution or right, and the amount
and character of such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. The Corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, Class B Common Stock and Series D Preferred Stock solely
for the purpose of effecting the conversion of the shares of Class B Common
Stock and Preferred Stock, such number of its shares of Common Stock, Class B
Common Stock and Series D Preferred Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of Class B Common
Stock and Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock, Class B Common Stock and Series D Preferred
Stock shall not be sufficient to effect the conversion of all then outstanding
shares of Class B Common Stock and Preferred Stock, in addition to such other
remedies as shall be available to the holder of such Class B Common Stock and
Preferred Stock, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock, Class B Common Stock and Series D Preferred Stock to
such number of shares as shall be sufficient for such purposes, including,
without limitation, engaging in best efforts to obtain the requisite stockholder
approval of any necessary amendment to this Certificate of Incorporation.
(k) Notices. Any notice required by the provisions of this Section 4
-------
to be given to the holders of shares of Class B Common Stock or Preferred Stock
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 to each holder
of record at his or her address appearing on the books of the Corporation. Each
such notice or other communication shall 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.
(l) Registrations and Approvals. If any shares of Common Stock, Class
---------------------------
B Common Stock or Series D Preferred Stock which would be issuable upon
conversion of Class B Common Stock or Preferred Stock hereunder require
registration with or approval of any governmental authority before such shares
may be issued upon conversion, the Corporation will in good faith and as
expeditiously as possible cause such shares to be duly registered or approved,
as the case may be. The Corporation will use commercially reasonable efforts to
list the shares of (or depository shares representing fractional interests in)
Common Stock, Class B Common Stock or Series D Preferred Stock required to be
delivered upon conversion of shares of Class B Common Stock or Preferred Stock
prior to such delivery upon the principal national
19
<PAGE>
securities exchange upon which the outstanding Common Stock is listed at the
time of such delivery, if any.
(m) Taxes. The Corporation shall pay any and all issue or other taxes
-----
that may be payable in respect of any issue or delivery of shares of Common
Stock, Class B Common Stock or Series D Preferred Stock on conversion of shares
of Class B Common Stock or Preferred Stock. The Corporation shall not, however,
be required to pay any tax which is payable in respect of any transfer involved
in the issue or delivery of Common Stock, Class B Common Stock or Series D
Preferred Stock in a name other than that in which the shares of the Class B
Common Stock or Preferred Stock so converted were registered, and no such issue
or delivery shall be made unless and until the person or entity requesting such
issue has paid to the Corporation the amount of such tax, or has established, to
the reasonable satisfaction of the Corporation, that such tax has been paid.
5. Voting Rights. The holders of the Preferred Stock shall have voting
-------------
rights as follows:
(a) In General. Subject to subsection (b) hereof and except as set
----------
forth in the last sentence of this subsection (a), the holder of each share of
Preferred Stock shall have the right to one vote for each share of Common Stock
into which such Preferred Stock could then be converted, and with respect to
such vote, such holder shall have full voting rights and powers equal to the
voting rights and powers of the holders of Common Stock, and shall be entitled,
notwithstanding any provision hereof, to notice of any stockholders' meeting in
accordance with the Bylaws of the Corporation, and shall be entitled to vote,
together with holders of Common Stock, with respect to any question upon which
holders of Common Stock have the right to vote. Fractional votes shall not,
however, be permitted and any fractional voting rights available on an as-
converted basis (after aggregating all shares into which shares of Preferred
Stock held by each holder could be converted) shall be rounded to the nearest
whole number (with one-half being rounded upward). Except as required by law or
as otherwise set forth herein, holders of Series D-1 Preferred Stock shall not
be entitled to vote for the election of directors or to vote on any other
matter.
(b) Voting for Board of Directors. The holders of shares of Common
-----------------------------
Stock, voting together as a single class, shall elect one member of the Board of
Directors of the Corporation. The holders of shares of Series B Preferred
Stock, voting together as a single class and on an as-converted basis, shall
elect three members of the Board of Directors of the Corporation. The holders of
shares of Series C Preferred Stock, voting together as a single class and on an
as-converted basis, shall elect two members of the Board of Directors of the
Corporation. Additional members of the Board of Directors, if any, shall be
elected by the holders of shares of Common Stock and Preferred Stock, voting
together as a single class and on an as-converted basis. If a vacancy on the
Board of Directors is to be filled by the Board of Directors, only a director or
directors elected by the same class of stockholders as those who would be
entitled to vote to fill such vacancy, if any, shall vote to fill such vacancy.
No action by members of the Board of Directors filling a vacancy on the Board of
Directors shall be effective until 10 days after all Board members who do not
have a right to vote on such
20
<PAGE>
appointment have received notice thereof. A majority of the Board members
entitled to receive such notice may waive such notice requirement on behalf of
all such Board members.
6. Protective Provisions.
---------------------
(a) So long as any shares of Series B Preferred Stock, Series C
Preferred Stock or Series D Preferred Stock are outstanding, the Corporation
shall not without first obtaining the approval (by vote or written consent, as
provided by law) of (i) the holders of at least a majority of the then
outstanding shares of Series B Preferred Stock, voting together as a single
class and on an as-converted basis, (ii) the holders of at least 66 2/3% of the
then outstanding shares of Series C Preferred Stock, voting together as a single
class, and (iii) the holders of at least a majority of the then outstanding
shares of Series D Preferred Stock, voting together as a single class:
(i) sell, convey or otherwise dispose of all or substantially
all of its property or business or merge into or consolidate with any other
corporation (other than a wholly-owned subsidiary corporation) or effect any
other transaction or series of related transactions in which more than 50% of
the voting power of the Corporation is disposed of, if, in any of such cases,
such transaction would establish a "fully diluted" valuation for the Company
(assuming the exercise of all outstanding options, warrants or other rights to
acquire capital stock of the Corporation and the conversion to Common Stock of
all outstanding shares of Preferred Stock) of less than $10.00 per share
(adjusted to reflect subsequent stock dividends, stock splits,
recapitalizations or similar transactions); provided that this Section 6(a)
--------
shall not apply to a merger effected exclusively for the purpose of changing
the domicile of the Corporation;
(ii) alter or change, or take any action to alter or change, the
rights, preferences or privileges of the shares of Series B Preferred Stock,
Series C Preferred Stock or Series D Preferred Stock so as to affect adversely
the shares of the other series;
(iii) increase or decrease (other than by conversion) the total
number of authorized shares of Series B Preferred Stock, Series C Preferred
Stock or Series D Preferred Stock;
(iv) redeem, purchase or otherwise acquire (or pay into or set
funds aside for a sinking fund for such purpose) any share or shares of
Preferred Stock or Common Stock; provided, however, that this restriction
-------- -------
shall not apply to the repurchase of shares of Common Stock from employees,
officers, directors, consultants or other persons performing services for the
Company or any subsidiary pursuant to agreements under which the Company has
the option to repurchase such shares at cost upon the occurrence of certain
events, such as the termination of employment;
(v) pay any dividends or make any distributions with respect
to the Common Stock of the Corporation;
(vi) dissolve, liquidate or wind up the Corporation;
21
<PAGE>
(vii) increase the size of the Board of Directors of the
Corporation to a number greater than eight; or
(viii) create any subsidiary that is not wholly owned by the
Corporation or permit any subsidiary of the Corporation to issue any equity
interests other than to the Corporation.
(b) So long as any shares of Series D Preferred Stock are outstanding,
the Corporation shall not without first obtaining the approval (by vote or
written consent, as provided by law) of the holders of at least a majority of
the then outstanding shares of Series D Preferred Stock, voting together as a
single class:
(i) alter or change, or take any action to alter or change, the
rights, preferences or privileges of the shares of Series D Preferred Stock so
as to affect adversely such shares;
(ii) increase or decrease (other than by conversion) the total
number of authorized shares of Series D Preferred Stock; or
(iii) authorize or issue, or obligate itself to issue, any other
equity security, including any other security convertible into or exercisable
for any equity security, having a preference over, or being on a parity with,
the Series D Preferred Stock with respect to voting, dividends, distributions,
redemption or upon liquidation.
(c) So long as any shares of Series D-1 Preferred Stock are
outstanding, the Corporation shall not without first obtaining the approval (by
vote or written consent, as provided by law) of the holders of at least a
majority of the then outstanding shares of Series D-1 Preferred Stock, voting
together as a single class:
(i) alter or change, or take any action to alter or change, the
rights, preferences or privileges of the shares of Series D-1 Preferred Stock so
as to affect adversely such shares;
(ii) increase or decrease (other than by conversion) the total
number of authorized shares of Series D-1 Preferred Stock; or
(iii) authorize or issue, or obligate itself to issue, any other
equity security, including any other security convertible into or exercisable
for any equity security, having a preference over, or being on a parity with,
the Series D-1 Preferred Stock with respect to voting, dividends, distributions,
redemption or upon liquidation.
(d) So long as any shares of Series C Preferred Stock are outstanding,
the Corporation shall not without first obtaining the approval (by vote or
written consent, as provided by law) of the holders of at least 66 2/3% of the
then outstanding shares of Series C Preferred Stock, voting together as a single
class:
22
<PAGE>
(i) alter or change, or take any action to alter or change, the
rights, preferences or privileges of the shares of Series C Preferred Stock so
as to affect adversely such shares;
(ii) increase or decrease (other than by conversion) the total
number of authorized shares of Series C Preferred Stock; or
(iii) authorize or issue, or obligate itself to issue, any other
equity security, including any other security convertible into or exercisable
for any equity security, having a preference over, or being on a parity with,
the Series C Preferred Stock with respect to voting, dividends, distributions,
redemption or upon liquidation.
(e) So long as any shares of Series B Preferred Stock are outstanding,
the Corporation shall not without first obtaining the approval (by vote or
written consent, as provided by law) of the holders of at least a majority of
the then outstanding shares of Series B Preferred Stock, voting together as a
single class:
(i) alter or change, or take any action to alter or change, the
rights, preferences or privileges of the shares of Series B Preferred Stock so
as to affect adversely such shares;
(ii) increase or decrease (other than by conversion) the total
number of authorized shares of Series B Preferred Stock; or
(iii) authorize or issue, or obligate itself to issue, any other
equity security, including any other security convertible into or exercisable
for any equity security, having a preference over, or being on a parity with,
the Series B Preferred Stock with respect to voting, dividends, distributions,
redemption or upon liquidation.
7. Status of Converted Stock. In the event any shares of Preferred
-------------------------
Stock shall be converted pursuant to Section 4 hereof, the shares so converted
shall be canceled and shall not be issuable by the Corporation. The Certificate
of Incorporation of the Corporation shall be appropriately amended to effect the
corresponding reduction in the Corporation's authorized capital stock.
(C) Common Stock.
------------
1. Dividend Rights. Subject to the prior rights of holders of all
---------------
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock and the Class B Common Stock shall be entitled
to receive, when and as declared by the Board of Directors, out of any assets
and funds of the Corporation legally available therefor, such dividends as may
be declared from time to time by the Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding
------------------
up of the Corporation, the assets of the Corporation shall be distributed as
provided in Section 2 of Division (B) of this Article IV.
23
<PAGE>
3. Redemption. The Common Stock and the Class B Common Stock are not
----------
redeemable.
4. Conversion. The Class B Common Stock will be convertible as
----------
provided in Section 4 of Division (B) of this Article IV.
5. Voting Rights. The holder of each share of Common Stock shall
-------------
have the right to one vote, and shall be entitled to notice of any stockholders'
meeting in accordance with the Bylaws of the Corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law. Except
as required by law or as set forth herein, holders of Class B Common Stock shall
not be entitled to vote for the election of directors or to vote on any other
matter.
(D) Treatment of Series D Preferred Stock and Series D-1 Preferred Stock.
--------------------------------------------------------------------
Except as otherwise set forth herein, the rights, preferences, privileges and
restrictions of the Series D Preferred Stock and the Series D-1 Preferred Stock
shall be identical in all respects, and any action by the Corporation affecting
the shares of Series D Preferred Stock or the Series D-1 Preferred Stock,
including without limitation, stock dividends, subdivisions, combinations,
consolidations, distributions, reclassifications, exchanges and substitutions,
shall affect the shares of the Series D Preferred Stock and the Series D-1
Preferred Stock equally.
(E) Treatment of Common Stock and Class B Common Stock. Except as
--------------------------------------------------
otherwise set forth herein, the rights, privileges and restrictions of the
Common Stock and the Class B Common Stock shall be identical in all respects,
and any action by the Corporation affecting the Common Stock or Class B Common
Stock, including without limitation, stock dividends, subdivisions,
combinations, consolidations, distributions, reclassifications, exchanges and
substitutions, shall affect the shares of Common Stock and Class B Common Stock
equally.
ARTICLE V
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors of the Corporation is expressly authorized to make, alter
or repeal any or all of the Bylaws of the Corporation.
ARTICLE VI
Elections of directors need not be by written ballot unless otherwise
provided in the Bylaws of the Corporation.
ARTICLE VII
(A) To the fullest extent permitted by the Delaware General Corporation
Law, as the same exists or as may hereafter be amended, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
24
<PAGE>
(B) The Corporation shall indemnify to the fullest extent permitted by law
any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he or she, his or her testator or intestate is or was a director or officer
of the Corporation or any predecessor of the Corporation, or serves or served at
any other enterprise as a director or officer at the request of the Corporation
or any predecessor to the Corporation.
(C) Neither any amendment nor repeal of this Article VII, nor the adoption
of any provision of the Corporation's Certificate of Incorporation inconsistent
with this Article VII, shall eliminate or reduce the effect of this Article VII
in respect of any matter occurring, or any action or proceeding accruing or
arising or that, but for this Article VII, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
ARTICLE VII
The Corporation is to have perpetual existence.
ARTICLE VIII
The number of directors which will constitute the whole Board of
Directors of the Corporation shall be designated in the Bylaws of the
Corporation.
ARTICLE IX
(A) On or prior to the date on which the Corporation first provides
notice of an annual meeting of the stockholders following the date this
Article IX shall have become effective, the Board of Directors of the
Corporation shall divide the directors into three classes, as nearly equal in
number as reasonably possible with the term of office of the first class to
expire at the 2000 annual meeting of stockholders or any special meeting in
lieu thereof, the term of office of the second class to expire at the 2001
annual meeting of stockholders or any special meeting in lieu thereof and the
term of office of the third class to expire at the 2002 annual meeting of
stockholders or any special meeting in lieu thereof. At each annual meeting of
stockholders or special meeting in lieu thereof following such initial
classification, directors elected to succeed those directors whose terms
expire shall be elected for a term of office to expire at the third succeeding
annual meeting of the stockholders or special meeting in lieu thereof after
their election and until their successors are duly elected and qualified.
(B) Subject to the rights of the holders of any series of Preferred Stock
then outstanding, newly created directorships resulting from any increase in
the authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filed only by a majority vote of the directors
then in office even though less than a quorum, or by a sole remaining
director. In the event of any increase or decrease in the authorized number of
directors, (i) each director then serving as such shall nevertheless continue
as a director of the class of which he or she is a member until the expiration
of his or her current term or his or her prior death, retirement, removal or
resignation and (ii) the newly created or eliminated directorships resulting
from such
25
<PAGE>
increase or decrease shall if reasonably possible be apportioned by the Board
of Directors among the three classes of directors so as to ensure that no one
class has more than one director more than any other class. To the extent
reasonably possible, consistent with the foregoing rule, any newly created
directorships shall be added to those classes whose terms of office are to
expire at the latest dates following such allocation and newly eliminated
directorships shall be subtracted from those classes whose terms of office are
to expire at the earliest dates following such allocation, unless otherwise
provided for from time to time by resolution adopted by a majority of the
directors then in office, although less than a quorum. In the event of a
vacancy in the Board of Directors, the remaining directors, except as
otherwise provided by law, may exercise the powers of the full Board of
Directors until the vacancy is filled.
(C) This Article IX shall become effective only when the Corporation
becomes a listed corporation within the meaning of Section 301.5 of the
California Corporations Code.
ARTICLE X
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any statutory provision) outside the State of Delaware at such place
or places as may be designated from time to time by the Board of Directors in
the Bylaws of the Corporation.
ARTICLE XI
Any registered holder of Preferred Stock may proceed to protect and
enforce its rights by any available remedy by proceeding at law or in equity
to protect and enforce any such rights, whether for the specific enforcement
of any provision in this Certificate or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy."
* * *
26
<PAGE>
The foregoing Amended and Restated Certificate of Incorporation has been
duly adopted by this corporation's Board of Directors and stockholders in
accordance with the applicable provisions of Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware.
Executed at San Francisco, California, on March 22, 1999.
/s/ Michael Malaga
-----------------------------------
Michael Malaga,
President
/s/ Steven Gorosh
-----------------------------------
Steven Gorosh,
Secretary
27
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
NORTHPOINT COMMUNICATIONS HOLDINGS, INC.
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 Registered Office.
-----------------
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is The Corporation Trust Company.
1.2 Other Offices.
-------------
The board of directors may at any time establish other offices at any
place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 Place of Meetings.
-----------------
Meetings of stockholders shall be held at any place, within or outside the
State of Delaware, designated by the Board of Directors. In the absence of any
such designation, stockholders' meetings shall be held at the registered office
of the corporation.
2.2 Annual Meeting.
--------------
The annual meeting of stockholders shall be held each year on a date and
at a time designated by the board of directors. At the meeting, directors
shall be elected and any other proper business may be transacted.
<PAGE>
2.3 Special Meeting.
---------------
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board, or by the chief executive
officer or the president or vice president of the corporation.
2.4 Notice of Stockholders' Meetings.
--------------------------------
All notices of meetings with stockholders shall be in writing and shall be
sent or otherwise given in accordance with Section 2.7 of these bylaws not less
than ten (10) nor more than sixty (60) days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notice shall specify the
place, date, and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called.
2.5 Advance Notice of Stockholder Nominees.
--------------------------------------
Only persons who are nominated in accordance with the procedures set forth
in this Section 2.5 shall be eligible for election as directors. Nominations of
persons for election to the board of directors of the corporation may be made at
a meeting of stockholders by or at the direction of the board of directors or by
any stockholder of the corporation entitled to vote for the election of
directors at the meeting who complies with the notice procedures set forth in
this Section 2.5. Such nominations, other than those made by or at the
direction of the board of directors, shall be made pursuant to timely notice in
writing to the secretary of the corporation.
To be timely, a stockholder's notice shall be delivered to or mailed and
received at the principal executive offices of the corporation (a) in the case
of an annual meeting, not less than sixty (60) days nor more than ninety (90)
days prior to the first anniversary of the preceding year's annual meeting;
provided, however, that in the event that the date of the annual meeting is
changed by more than thirty (30) days from such anniversary date, notice by the
stockholders to be timely must be so received not later than the close of
business on the tenth (10th) day following the earlier of the day on which such
notice of the date of the meeting was mailed or public disclosure was made and
(b) in the case of a special meeting at which directors are to be elected, not
later than the close of business on the tenth (10th) day following the earlier
of the day on which notice of the date of the meeting was mailed or public
disclosure was made. Such stockholder's notice shall set forth (a) as to each
person whom the stockholder proposes to nominate for election or re-election as
a director, (i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares of the corporation which are beneficially owned by
such person and (iv) any other information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (including, without limitation, such
person's written consent to being named in the proxy
2
<PAGE>
statement as a nominee and to serving as a director if elected, and (b) as to
the stockholder giving the notice, (i) the name and address, as they appear on
the corporation's books, of such stockholder, and (ii) the class and number of
shares of the corporation which are beneficially owned by such stockholder and
also which are owned of record by such stockholder.
At the request of the board of directors, any person nominated by the board
of directors for election as a director shall furnish to the secretary of the
corporation that information required to be set forth in a stockholder's notice
of nomination which pertains to the nominee. No person shall be eligible for
election as a director of the corporation unless nominated in accordance with
the procedures set forth in this Section 2.5. The chairman of the meeting
shall, if the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the procedures prescribed by the
bylaws, and, if he or she should so determine, he or she shall so declare to the
meeting and the defective nomination shall be disregarded. Notwithstanding the
foregoing provisions of this Bylaw, a stockholder shall also comply with all
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder with respect to the matters set forth in
this Bylaw.
2.6 Advance Notice of Stockholder Business.
--------------------------------------
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the annual meeting. To be
properly brought before an annual meeting, business must be (a) pursuant to the
corporation's notice of meeting (or any supplement thereto), (b) by or at the
direction of the board of directors or (c) by any stockholder of the corporation
who is a stockholder of record at the time of giving of the notice provided for
in this Section 2.6, who shall be entitled to vote at such meeting and who
complies with the notice procedures set forth in this Section 2.6.
Business to be brought before an annual meeting by a stockholder shall not
be considered properly brought if the stockholder has not given timely notice
thereof in writing to the secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not less than sixty (60) nor more
than ninety (90) days prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that the date of the
meeting is changed by more than thirty (30) days from such anniversary date,
notice by the stockholder to be timely must be so received not later than the
close of business on the tenth (10th) day following the earlier of the day on
which such notice of the date of the meeting was mailed or such public
disclosure was made. A stockholder's notice to the secretary shall set forth as
to each matter the stockholder proposes to bring before the meeting: (i) a
brief description of the business desired to be brought before the meeting and
the reasons for conducting such business at the meeting, (ii) the name and
address, as they appear on the corporation's books, of the stockholder proposing
such business, and the name and address of the beneficial owner, if any, on
whose behalf the proposal is made, (iii) the class and number of shares of the
corporation, which are owned by the stockholder of record and by the beneficial
owner, if any, on whose behalf the proposal is
3
<PAGE>
made, (iv) any material interest of the stockholder of record and the
beneficial owner, if any, on whose behalf the proposal is made in such
business, and (v) any other information that is required by law to be provided
by the stockholder in his or her capacity as a proponent of a stockholder
proposal.
Notwithstanding anything in these bylaws to the contrary, no business shall
be conducted at an annual meeting except in accordance with the procedures set
forth in this Section 2.6. The chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by the bylaws, and, if he or she
should so determine, he or she shall so declare to the meeting and the defective
nomination shall be disregarded. Notwithstanding the foregoing provisions of
this Bylaw, a stockholder shall also comply with all applicable requirements of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder with respect to the matters set forth in this Bylaw.
2.7 Manner of Giving Notice; Affidavit of Notice.
--------------------------------------------
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein. If mailed, such notice
shall be deemed to be given when deposited in the mail, postage prepaid,
directed to the stockholder at his address as it appears on the records of the
corporation.
2.8 Quorum.
------
The holders of a majority of the stock issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business
except as otherwise provided by statute or by the certificate of incorporation.
If, however, such quorum is not present or represented at any meeting of the
stockholders, then either (a) the chairman of the meeting or (b) the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
2.9 Adjourned Meeting; Notice.
-------------------------
When a meeting is adjourned to another time or place, unless these bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the
4
<PAGE>
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
2.10 Conduct of Business.
-------------------
The chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of business.
2.11 Voting.
------
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.14 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).
Except as provided in the certificate of incorporation, each stockholder
shall be entitled to one vote for each share of capital stock held by such
stockholder.
2.12 Waiver of Notice.
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws.
2.13 Stockholder Action by Written Consent Without a Meeting; No Stockholder
-----------------------------------------------------------------------
Action by Written Consent Without a Meeting Following Initial Public
--------------------------------------------------------------------
Offering.
--------
Unless otherwise provided in the certificate of incorporation, any action
required to be taken at any annual or special meeting of stockholders of the
corporation, or any action that may be taken at any annual or special meeting of
such stockholders, may be taken without a meeting, without prior notice, and
without a vote if a consent in writing, setting forth the action so taken, is
signed by the holders of outstanding stock having not
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less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon
were present and voted.
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
Notwithstanding anything to the contrary contained in the first two
paragraphs of this Section 2.13, effective upon the closing of the corporation's
initial public offering of its Common Stock, any action required to be taken at
any annual or special meeting of stockholders of the corporation, or any action
that may be taken at any annual or special meeting of such stockholders, must be
taken at an annual or special meeting of stockholders of the corporation, with
prior notice and with a vote, and may not be taken by a consent in writing,
2.14 Record Date for Stockholder Notice; Voting; Giving Consents.
-----------------------------------------------------------
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of business
on the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which
the meeting is held.
(ii) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the board of directors is necessary, shall be the day on which the first
written consent is expressed.
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(iii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
2.15 Proxies.
-------
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.
ARTICLE III
DIRECTORS
---------
3.1 Powers.
------
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the certificate of incorporation or these bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
3.2 Number of Directors.
-------------------
The authorized number of directors shall consist of eight (8) persons
until changed by a proper amendment of this Section 3.2.
No reduction of the authorized number of directors shall have the effect
of removing any director before that director's term of office expires.
3.3 Election, Qualification and Term of Office of Directors.
-------------------------------------------------------
The board of directors shall be divided into three classes, as nearly
equal in number as possible with the term of office of the first class to
expire at the 2000 annual
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meeting of stockholders or any special meeting in lieu thereof, the term of
office of the second class to expire at the 2001 annual meeting of
stockholders or any special meeting in lieu thereof and the term of office of
the third class to expire at the 2002 annual meeting of stockholders or any
special meeting in lieu thereof. At each annual meeting of stockholders or
special meeting in lieu thereof following such initial classification,
directors elected to succeed those directors whose terms expire shall be
elected for a term of office to expire at the third succeeding annual meeting
of the stockholders or special meeting in lieu thereof after their election
and until their successors are duly elected and qualified. The foregoing
provisions shall become effective only when the corporation becomes a listed
corporation within the meaning of Section 301.5 of the California Corporations
Code. Directors need not be stockholders unless so required by the certificate
of incorporation or these bylaws, wherein other qualifications for directors
may be prescribed.
Subject to the rights of the holders of any series of Preferred Stock then
outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the board of directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the directors
then in office even though less than a quorum, or by a sole remaining director.
In the event of any increase or decrease in the authorized number of directors,
(a) each director then serving as such shall nevertheless continue as a director
of the class of which he or she is a member until the expiration of his or her
current term or his or her prior death, retirement, removal or resignation and
(b) the newly created or eliminated directorships resulting from such increase
or decrease shall if reasonably possible be apportioned by the board of
directors among the three classes of directors so as to ensure that no one class
has more than one director more than any other class. To the extent reasonably
possible, consistent with the foregoing rule, any newly created directorships
shall be added to those classes whose terms of office are to expire at the
latest dates following such allocation and newly eliminated directorships shall
be subtracted from those classes whose terms of office are to expire at the
earliest dates following such allocation, unless otherwise provided for from
time to time by resolution adopted by a majority of the directors then in
office, although less than a quorum. In the event of a vacancy in the board of
directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full board of directors until the vacancy is filled.
Notwithstanding the foregoing, each director shall serve until his or her
successor is duly elected and qualified or until his or her death, resignation
or removal. No decrease in the number of directors constituting the board of
directors shall shorten the term of any incumbent director.
Elections of directors need not be by written ballot.
There shall be no right with respect to shares of stock of the corporation
to cumulate votes in the election of directors.
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3.4 Place of Meetings; Meetings by Telephone.
----------------------------------------
The board of directors of the corporation may hold meetings, both regular
and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.5 Regular Meetings.
----------------
Regular meetings of the board of directors may be held without notice at
such time and at such place as shall from time to time be determined by the
board.
3.6 Special Meetings; Notice.
------------------------
Special meetings of the board for any purpose or purposes may be called at
any time by the chairman of the board, the president, any vice president, the
secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at lest four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.7 Quorum.
------
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
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A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
3.8 Waiver of Notice.
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these bylaws. If a quorum is not present at any meeting of
the board of directors, then the directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum is present.
3.9 Board Action by Written Consent Without a Meeting.
-------------------------------------------------
Unless otherwise restricted by the certificate of incorporation or these
bylaws, any action required or permitted to be taken at any meeting of the board
of directors, or of any committee thereof, may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee. Written consents representing actions taken by the
board or committee may be executed by telex, telecopy or other facsimile
transmission, and such facsimile shall be valid and binding to the same extent
as if it were an original.
3.10 Fees and Compensation of Directors.
----------------------------------
Unless otherwise restricted by the certificate of incorporation or these
bylaws, the board of directors shall have the authority to fix the compensation
of directors. No such compensation shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
3.11 Approval of Loans to Officers.
-----------------------------
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected
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to benefit the corporation. The loan, guaranty or other assistance may be with
or without interest and may be unsecured, or secured in such manner as the
board of directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in this section contained shall be
deemed to deny, limit or restrict the powers of guaranty or warranty of the
corporation at common law or under any statute.
3.12 Removal of Directors.
--------------------
The holders of a majority of the shares then entitled to vote at an
election of directors may remove, only with cause, a director or directors of
the corporation.
No reduction in the authorized number of directors shall have the effect
of removing any director prior to the expiration of such director's term of
office.
3.13 Chairman of the Board of Directors.
----------------------------------
The corporation may also have, at the discretion of the board of
directors, a chairman of the board of directors who shall not be considered an
officer of the corporation.
ARTICLE IV
COMMITTEES
----------
4.1 Committees of Directors.
-----------------------
The board of directors may, by resolution passed by a majority of the
whole board, designate one or more committees, with each committee to consist
of one or more of the directors of the corporation. The board may designate
one or more directors as alternate members of any committee, who may replace
any absent or disqualified member at any meeting of the committee. In the
absence or disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or
not he or they constitute a quorum, may unanimously appoint another member of
the board of directors to act at the meeting in the place of any such absent
or disqualified member. Any such committee, to the extent provided in the
resolution of the board of directors or in the bylaws of the corporation,
shall have and may exercise all the powers and authority of the board of
directors in the management of the business and affairs of the corporation,
and may authorize the seal of the corporation to be affixed to all papers that
may require it; but no such committee shall have the power or authority to (i)
amend the certificate of incorporation (except that a committee may, to the
extent authorized in the resolution or resolutions providing for the issuance
of shares of stock adopted by the board of directors as provided in Section
151(a) of the General Corporation Law of Delaware, fix the designations and
any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the corporation or the
conversion into, or the exchange of such shares for, shares of any
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other class or classes or any other series of the same or any other class or
classes of stock of the corporation), (ii) adopt an agreement of merger or
consolidation under Sections 251 or 252 of the General Corporation Law of
Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the corporation or a revocation
of a dissolution, or (v) amend the bylaws of the corporation; and, unless the
board resolution establishing the committee, the bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to
adopt a certificate of ownership and merger pursuant to Section 253 of the
General Corporation Law of Delaware.
4.2 Committee Minutes.
-----------------
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 Meetings and Action of Committees.
---------------------------------
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these bylaws,
Section 3.4 (place of meetings and meetings by telephone), Section 3.5
(regular meetings), Section 3.6 (special meetings and notice), Section 3.7
(quorum), Section 3.8 (waiver of notice) and Section 3.10 (action without a
meeting), with such changes in the context of those bylaws as are necessary to
substitute the committee and its members for the board of directors and its
members; provided, however, that the time of regular meetings of committees
may also be called by resolution of the board of directors and that notice of
special meetings of committees shall also be given to all alternate members,
who shall have the right to attend all meetings of the committee. The board of
directors may adopt rules for the government of any committee not inconsistent
with the provisions of these bylaws.
ARTICLE V
OFFICERS
--------
5.1 Officers.
--------
The officers of the corporation shall be a chief executive officer, a
president, a secretary, and a chief financial officer. The corporation may also
have, at the discretion of the board of directors, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these bylaws. Any number of offices may be held by the same
person.
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5.2 Appointment of Officers.
-----------------------
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Sections 5.3 or 5.5 of these bylaws, shall
be chosen by the board of directors, subject to the rights, if any, of an
officer under any contract of employment.
5.3 Subordinate Officers.
--------------------
The board of directors may appoint, or empower the chief executive officer
or the president to appoint, such other officers and agents as the business of
the corporation may require, each of whom shall hold office for such period,
have such authority, and perform such duties as are provided in these bylaws or
as the board of directors may from time to time determine.
5.4 Removal and Resignation of Officers.
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 Vacancies in Offices.
--------------------
Any vacancy occurring in any office of the corporation shall be filled by
the board of directors.
5.6 Chief Executive Officer.
-----------------------
Subject to such supervisory powers, if any, as may be given by the board
of directors to the chairman of the board, the chief executive officer of the
corporation shall, subject to the control of the board of directors, have
general supervision, direction and control of the business and officers of the
corporation. The chief executive officer shall preside at all meetings of the
stockholders and, in the absence or nonexistence of a chairman of the board,
at all meetings of the board of directors. The chief executive officer shall
have the general powers and duties of management usually vested in the
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office of chief executive officer of a corporation and shall have such other
powers and duties as may be prescribed by the board of directors or these
bylaws.
5.7 President.
---------
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board or the chief executive officer, the
president of the corporation shall have general supervision, direction and
control of the business and officers of the corporation. The president shall
have the general powers and duties of management usually vested in the office of
president of a corporation and shall have such other powers and duties as may be
prescribed by the board of directors or these bylaws.
5.8 Vice Presidents.
---------------
In the absence or disability of the chief executive officer and president,
the vice presidents, if any, in order of their rank as fixed by the board of
directors or, if not ranked, a vice president designated by the board of
directors, shall perform all the duties of the president and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
board of directors, these bylaws, the president or the chairman of the board.
5.9 Secretary.
---------
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or at such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and stockholders. The minutes shall show the time and place of
each meeting, the names of those present at directors' meetings or committee
meetings, the number of shares present or represented at stockholders' meetings,
and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the board of directors required to be given by law or by
these bylaws. The secretary shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or by these bylaws.
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5.10 Chief Financial Officer.
-----------------------
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other valuables
in the name and to the credit of the corporation with such depositories as may
be designated by the board of directors. The chief financial officer shall
disburse the funds of the corporation as may be ordered by the board of
directors, shall render to the president and directors, whenever they request
it, an account of all his or her transactions as chief financial officer and
of the financial condition of the corporation, and shall have other powers and
perform such other duties as may be prescribed by the board of directors or by
the bylaws.
5.11 Representation of Shares of Other Corporations.
----------------------------------------------
The chairman of the board, the chief executive officer, the president, any
vice president, the chief financial officer, the secretary or any assistant
secretary of this corporation, or any other person authorized by the board of
directors or the chief executive officer or the president or a vice president,
is authorized to vote, represent, and exercise on behalf of this corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of this corporation. The authority granted herein may be
exercised either by such person directly or by any other person authorized to do
so by proxy or power of attorney duly executed by such person having the
authority.
5.12 Authority and Duties of Officers.
--------------------------------
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS. OFFICERS,
----------------------------------------
EMPLOYEES AND OTHER AGENTS
--------------------------
6.1 Indemnification of Directors and Officers.
-----------------------------------------
The corporation shall, to the maximum extent and in the manner permitted
by the General Corporation Law of Delaware, indemnify each of its directors
and officers
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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 corporation. For purposes of this Section 6.1, a "director" or
"officer" of the corporation includes any person (i) who is or was a director
or officer of the corporation, (ii) who is or was serving at the request of
the corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise, or (iii) who was a director or
officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.2 Indemnification of Others.
-------------------------
The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, 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 corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 Payment of Expenses in Advance.
------------------------------
Expenses incurred in defending any action or proceeding for which
indemnification is required pursuant to Section 6.1 or for which indemnification
is permitted pursuant to Section 6.2 following authorization thereof by the
board of directors shall be paid by the corporation in advance of the final
disposition of such action or proceeding upon receipt of an undertaking by or on
behalf of the indemnified party to repay such amount if it shall ultimately be
determined that the indemnified party is not entitled to be indemnified as
authorized in this Article 6.
6.4 Indemnity Not Exclusive.
-----------------------
The indemnification provided by this Article 6 shall not be deemed
exclusive of any other rights which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that
additional rights to indemnification are authorized in the certificate of
incorporation.
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6.5 Insurance.
---------
The corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of the General Corporation Law of Delaware.
6.6 Conflicts.
---------
No indemnification or advance shall be made under this Article 6, except
where such indemnification or advance is mandated by law or the order, judgment
or decree of any court of competent jurisdiction, in any circumstance where it
appears:
(i) That it would be inconsistent with a provision of the certificate
of incorporation, these bylaws, a resolution of the stockholders or an
agreement in effect at the time of the accrual of the alleged cause of the
action asserted in the proceeding in which the expenses were incurred or other
amounts were paid, which prohibits or otherwise limited indemnification; or
(ii) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 Maintenance and Inspection of Records.
-------------------------------------
The corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep a record of its
shareholders listing their names and addresses and the number and class of
shares held by each shareholder, a copy of these bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so
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act on behalf of the stockholder. The demand under oath shall be directed to
the corporation at its registered office in Delaware or at its principal place
of business.
7.2 Inspection by Directors.
-----------------------
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 Annual Statement to Stockholders.
--------------------------------
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by the vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
ARTICLE VII
GENERAL MATTERS
---------------
8.1 Checks.
------
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 Execution of Corporate Contracts and Instruments.
------------------------------------------------
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
18
<PAGE>
8.3 Stock Certificates; Partly Paid Shares.
--------------------------------------
The shares of a corporation shall be represented by certificates, provided
that the board of directors of the corporation may provide by resolution or
resolutions that some or all of any or all classes or series of its stock shall
be uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the board of directors, or the chief executive officer or the president or vice-
president, and by the chief financial officer or an assistant treasurer, or the
secretary or an assistant secretary of such corporation representing the number
of shares registered in certificate form. Any or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the corporation with the same
effect as if he were such officer, transfer agent or registrar at the date of
issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 Special Designation on Certificates.
-----------------------------------
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
19
<PAGE>
8.5 Lost Certificates.
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
8.6 Construction; Definitions.
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a corporation and a natural
person.
8.7 Dividends.
---------
The directors of the corporation, subject to any restrictions contained in
the certificate of incorporation, may declare and pay dividends upon the shares
of its capital stock pursuant to the General Corporation Law of Delaware.
Dividends may be paid in cash, in property, or in shares of the corporation's
capital stock.
The directors of the corporation may set apart out of any of the funds of
the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 Fiscal Year.
-----------
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 Seal.
----
The corporation may have a corporate seal, which shall be adopted and which
may be altered by the board of directors, and may use the same by causing it or
a facsimile thereof, to be impressed or affixed or in any other manner
reproduced.
20
<PAGE>
8.10 Transfer of Stock.
-----------------
Upon surrender to the corporation or the transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction in its books.
8.11 Stock Transfer Agreements.
-------------------------
The corporation shall have power to enter into and perform any agreement
with any number of shareholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of Delaware.
8.12 Registered Stockholders.
-----------------------
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
----------
The bylaws of the corporation may be adopted, amended or repealed by the
stockholders entitled to vote; provided, however, that the corporation may, in
its certificate of incorporation, confer the power to adopt, amend or repeal
bylaws upon the directors. The fact that such power has been so conferred upon
the directors shall not divest the stockholders of the power, nor limit their
power to adopt, amend or repeal bylaws.
21
<PAGE>
CERTIFICATE OF ADOPTION OF
AMENDED AND RESTATED BYLAWS
OF
NORTHPOINT COMMUNICATIONS HOLDINGS, INC.
The undersigned hereby certifies that he is the duly elected, qualified,
and acting Secretary of NorthPoint Communications Holdings, Inc. (the
"Corporation") and that the foregoing Amended and Restated Bylaws, comprising
twenty-one (21) pages, were adopted as the Amended and Restated Bylaws of the
Corporation on March 22, 1999, by written consent of the Board of Directors of
the Corporation dated March 22, 1999.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed
the corporate seal this 22nd day of March, 1999.
/s/ Steven J. Gorosh
__________________________________
Steven J. Gorosh,
Secretary
<PAGE>
EXHIBIT 10.1
NORTHPOINT COMMUNICATIONS HOLDINGS, INC.
EMPLOYEE STOCK PURCHASE PLAN
NorthPoint Communications Holdings, Inc., a corporation organized
under the laws of the State of Delaware (the "Company"), hereby adopts the
NorthPoint Communications Holdings, Inc. Employee Stock Purchase Plan (the
"Plan"), effective as of the Effective Date (as defined herein).
The purposes of the Plan are as follows:
(1) To assist employees of the Company and its Subsidiary
Corporations (as defined below) in acquiring a stock ownership interest in
the Company pursuant to a plan which is intended to qualify as an "employee
stock purchase plan" within the meeting of Section 423(b) of the Internal
Revenue Code of 1986, as amended.
(2) To help employees provide for their future security and to
encourage them to remain in the employment of the Company and its
Subsidiary Corporations.
1. Definitions. Whenever any of the following terms is used in the Plan
-----------
with the first letter or letters capitalized, it shall have the following
meaning unless context clearly indicates to the contrary (such definitions to
be equally applicable to both the singular and the plural forms of the terms
defined):
(a) "Account" shall mean the account established for a Participant
under the Plan for an Option Period.
(b) "Authorization" shall mean a Participant's payroll deduction
authorization with respect to an Option Period in accordance with Section 3(b)
hereof.
(c) "Base Compensation" shall mean gross base compensation received by
an Employee on each Payday as compensation for services to the Company or any
Subsidiary Corporation, excluding overtime payments, sales commissions,
incentive compensation, bonuses, expense reimbursements, fringe benefits and
other special-payments.
(d) "Board of Directors" or "Board" means the Board of Directors of
the Company.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Committee" means the committee appointed to administer the Plan
pursuant to Section 12.
<PAGE>
(g) "Company" means NorthPoint Communications Holdings, Inc., a
Delaware corporation.
(h) "Date of Exercise" means, with respect to any Option, the last day
of the Option Period for which the Option was granted.
(i) "Date of Grant" means, with respect to any Option, the date upon
which the Option is granted, as set forth in accordance with Section 3(a).
(j) "Effective Date" means the date on which the Company's
Registration Statement on Form S-1 registering the initial public offering of
the Stock becomes effective.
(k) "Eligible Compensation" means the Eligible Employee's Base
Compensation.
(l) "Eligible Employee" means an Employee of the Company or any
Subsidiary Corporation: (i) who does not, immediately after the Option is
granted, own stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company, a Parent
Corporation or a Subsidiary Corporation (as determined under Section 423(b)(3)
of the Code); (ii) whose customary employment is for more than twenty (20) hours
per week; and (iii) whose customary employment is for more than five (5) months
in any calendar year. For purposes of paragraph (i), the rules of Section
424(d) of the Code with regard to the attribution of stock ownership shall apply
in determining the stock ownership of an individual, and stock which an employee
may purchase under outstanding options shall be treated as stock owned by the
employee. During a leave of absence meeting the requirements of Treasury
Regulation Section 1.421-7(h)(2), an individual shall be treated as an employee
of the Company or Subsidiary Corporation employing such individual immediately
prior to such leave.
(m) "Employee" shall mean any person who renders services to the
Company or a Subsidiary Corporation in the status of an employee within the
meaning of Code Section 3401(c). "Employee" shall not include any director of
the Company or a Subsidiary Corporation who does not render services to the
Company or a Subsidiary Corporation in the status of an employee within the
meaning of Code Section 3401(c).
(n) "Offering Period" shall mean: (i) the period commencing on the
Effective Date and ending on the next following June 30 or December 31 (unless
such period is less than 30 days in duration), and (ii) each six-month period
commencing on any January 1 and July 1 following the Effective Date. Options
shall be granted on the Date of Grant and exercised on the Date of Exercise, as
provided in Sections 3(a) and 4(a).
(o) "Option" means an option granted under the Plan to an Eligible
Employee to purchase shares of Stock.
(p) "Option Period" means, with respect to any Option, the period
beginning on the Date of Grant and ending on the Date of Exercise.
2
<PAGE>
(q) "Option Price" means the option price determined in accordance
with Section 4(b).
(r) "Parent Corporation" means any corporation, other than the
Company, in an unbroken chain of corporations ending with the Company if, at the
time of the granting of the Option, each of the corporations other than the
Company owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
(s) "Participant" means an Eligible Employee who has complied with the
provisions of Section 3(b) hereof.
(t) "Payday" means the regular and recurring established day for
payment of Base Compensation to employees of the Company or any Subsidiary
Corporation.
(u) "Plan" means The NorthPoint Communications Holdings, Inc. Employee
Stock Purchase Plan.
(v) "Stock" means the shares of the Company's Common Stock, $0.001 par
value.
(w) "Subsidiary Corporation" means any corporation, other than the
Company, in an unbroken chain of corporations beginning with the Company if, at
the time of the granting of the Option, each of the corporations other than the
last corporation in an unbroken chain owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
2. Stock Subject to the Plan. Subject to the provisions of Section 9
-------------------------
hereof (relating to adjustments upon changes in the Stock) and Section 11
hereof (relating to amendments of the Plan), the Stock that may be sold
pursuant to Options granted under the Plan shall not exceed in the aggregate
1,000,000 shares of Stock; provided, however, that, during the term of the
Plan, on each anniversary of the date of the Plan's initial adoption by the
Board (commencing with the first such anniversary), such number of shares of
Stock shall be increased by 250,000 shares of Stock. The shares of Stock sold
pursuant to Options granted under the Plan may be unissued shares or treasury
shares of Stock, or shares of Stock bought on the Nasdaq National Market
("Nasdaq") or other nationally-recognized exchange, or other market, for
purposes of the Plan.
3. Grant of Options.
----------------
(a) Option Grants. The Company shall grant Options under the Plan to
-------------
all Eligible Employees in successive Offering Periods until the earlier of: (i)
the date when the number of shares of Stock available under the Plan have been
sold, or (ii) the date when the Plan is terminated. Each Employee who is an
Eligible Employee on the first day of an Offering Period shall be granted an
Option with respect to such Offering Period as of such date. The Date of Grant
of an Option shall be the first day of the Offering Period with respect to which
such Option was granted. Each Option shall expire on the Date of Exercise
immediately after the automatic exercise of the Option pursuant to Section 4(a).
The number of shares of Stock subject
3
<PAGE>
to a Participant's Option shall equal the payroll deductions authorized by
such Participant in accordance with subsection (b) for the Option Period,
divided by the Option Price, except as provided in Section 5(a); provided,
however, that the maximum number of shares of Stock subject to any Option
shall not exceed 2,000. The Company shall not grant an Option with respect to
an Offering Period to any individual who is not an Eligible Employee on the
first day of such Offering Period.
(b) Election to Participate; Payroll Deduction Authorization. Except
--------------------------------------------------------
as provided in subsection (d), an Eligible Employee shall participate in the
Plan only by means of payroll deduction. Each Eligible Employee who elects to
participate in the Plan with respect to an Offering period shall deliver to the
Company no later than ten (10) days before the first day of the Offering Period,
a completed and executed written payroll deduction authorization in a form
prepared by the Committee (the "Authorization"). An Eligible Employee's
Authorization shall give notice of such Eligible Employee's election to
participate in the Plan for the next following Offering Period (and subsequent
Offering Periods) and shall designate a stated whole percentage of such Eligible
Employee's Eligible Compensation to be withheld by the Company or Subsidiary
Corporation employing such Eligible Employee on each Payday during the Offering
Period, which shall not be less than one percent (1%), nor more than ten percent
(10%), of Eligible Compensation. The Eligible Compensation payable to a
Participant for an Offering Period shall be reduced each Payday through payroll
deduction in an amount equal to the percentage specified in the Authorization,
and such amount shall be credited to the Participant's Account under the Plan.
An Eligible Employee may change the percentage of Eligible Compensation
designated in the Authorization subject to the limits of this subsection, and
may suspend the Authorization, at any time during the Offering Period. Any
Authorization shall remain in effect until the Eligible Employee changes or
suspends the same pursuant to this subsection, withdraws pursuant to Section 5,
or ceases to be an Eligible Employee pursuant to Section 6.
(c) $25,000 Limitation. No Eligible Employee shall be granted an
------------------
Option under the Plan which permits his rights to purchase Stock under the Plan,
and to purchase Stock or other stock under all other employee stock purchase
plans of the Company, any Parent Corporation or any Subsidiary Corporation
subject to the Section 423, to accrue at a rate which exceeds $25,000 of fair
market value of such Stock or other stock (determined at the time the Option is
granted) for each calendar year in which the Option is outstanding at any time.
For purpose of the limitation imposed by this subsection, the right to purchase
Stock or other stock under an Option or other option accrues when the Option or
other option (or any portion thereof) first becomes exercisable during the
calendar year, the right to purchase Stock or other stock under an Option or
other option accrues at the rate provided in the Option or other option, but in
no case may such rate exceed $25,000 of the fair market value of such Stock or
other stock (determined at the time such Option or other option is granted) for
any one calendar year, and a right to purchase Stock or other stock which has
accrued under an Option or other option may not be carried over to any Option or
other option. This limitation shall be applied in accordance with Section
423(b)(8) of the Code and the Treasury Regulations thereunder.
(d) Leaves of Absence. During a leave of absence meeting the
-----------------
requirements of Treasury Regulation Section 1.421-7(h)(2), a Participant may
continue to participate in the
4
<PAGE>
Plan by making cash payments to the Company on each Payday equal to the amount
of the Participant's payroll deductions under the Plan for the Payday
immediately preceding the first day of such Participant's leave of absence.
4. Exercise of Options; Option Price.
---------------------------------
(a) Option Exercise. Each Participant automatically and without any
---------------
act on such Participant's part shall be deemed to have exercised such
Participant's Option on the Date of Exercise to the extent that the balance then
in the Participant's Account is sufficient to purchase, at the Option Price,
whole shares of the Stock subject to the Option. Fractional shares of Stock
shall not be sold pursuant to an Option.
(b) Option Price Defined. The option price per share of Stock (the
--------------------
"Option Price") to be paid by a Participant upon the exercise of the
Participant's Option shall be equal to 85% of the lesser of: (i) the Fair
Market Value of a share of Stock on the Date of Exercise or (ii) the Fair Market
Value of a share of Stock on the Date of Grant. The Fair Market Value of a
share of Stock as of a given date shall be: (A) the closing price of a share of
Stock on the principal exchange on which the Stock is then trading, if any, on
such date, or, if shares of Stock were not traded on such date, then on the next
preceding trading day during which a sale occurred; (B) if the Stock is not
traded on an exchange, but is quoted on Nasdaq or a successor quotation system,
(X) the last sales price (if the Stock is then listed as a National Market Issue
under the NASD National Market System) or (Y) the mean between the closing
representative bid and asked prices (in all other cases) for a share of Stock on
such date, or, if shares of Stock were not traded on such date, then on the next
preceding trading day during which a sale occurred, as reported by Nasdaq or
such successor quotation system; (iii) if the Stock is not publicly traded on an
exchange and not quoted on Nasdaq or a successor quotation system, the mean
between the closing bid and asked prices for a share of Stock on such date, or,
if shares of Stock were not traded on such date, then on the next preceding
trading day during which a sale occurred, as determined in good faith by the
Committee; or (iv) if the Stock is not publicly traded, the fair market value of
a share of Stock established by the Committee acting in good faith.
(c) Delivery of Share Certificate. As soon as practicable after the
-----------------------------
exercise of any Option, the Company shall deliver to the Participant or his or
her nominee a certificate representing the whole shares of Stock purchased by
the Participant from amounts credited to the Participant's Account under the
Plan. Any amount remaining in a Participant's Account after the purchase of
whole shares of Stock upon exercise of an Option shall remain credited to such
Participant's Account and carried forward to the next following Offering Period
and applied toward the purchase of whole shares of Stock pursuant to the Option,
if any, granted to such Participant for the next following Offering Period. In
the event the Company is required to obtain authority from any commission or
agency to issue any such certificate, the Company shall seek to obtain such
authority as soon as reasonably practicable. The inability of the Company to
obtain authority from any such commission or agency which the Committee in its
absolute discretion, deems necessary for the lawful issuance of any such
certificate shall relieve the Company from liability to any Participant, except
to pay to the Participant the amount of the balance in the Participant's Account
in one lump sum in cash, without any interest thereon.
5
<PAGE>
(d) Pro Rata Allocations. If the total number of shares of Stock for
--------------------
which Options are to be exercised on any date exceeds the number of shares of
Stock remaining unsold under the Plan (after deduction for all shares of Stock
for which Options have theretofore been exercised), the Committee shall make a
pro rata allocation of the available remaining shares of Stock in as nearly a
uniform manner as shall be practicable and the balance of the amount credited to
the Account of each Participant which has not been applied to the purchase of
shares of Stock shall be paid to such Participant in one lump sum in cash within
sixty (60) days after the Date of Exercise, without any interest thereon.
(e) Information Statement. The Company shall provide each Participant
---------------------
whose Option is exercised with an information statement in accordance with
Section 6039(a) of the Code and the Treasury Regulations thereunder. The
Company shall maintain a procedure for identifying certificates of shares of
Stock sold upon the exercise of Options in accordance with Section 6039(b) of
the Code.
5. Withdrawal from the Plan.
-------------------------
(a) Withdrawal Election. Any Participant may withdraw from
-------------------
participation under the Plan at any time, except that no Participant may
withdraw during the last ten (10) days of any Option Period. A Participant
electing to withdraw from the Plan must deliver to the Company a notice of
withdrawal in a form prepared by the Committee (the "Withdrawal Election") not
later than ten (10) days prior to the Date of Exercise for such Option Period.
Upon receipt of a Participant's Withdrawal Election, the Company or Subsidiary
Corporation employing the Participant shall pay to the Participant the amount
credited to the Participant's Account in one lump sum in cash within sixty (60)
days, without any interest thereon. Upon receipt of a Participant's Withdrawal
Election by the Company, the Participant shall cease to participate in the Plan
and the Participant's Option for such Option Period shall terminate.
(b) Eligibility following Withdrawal. A Participant who withdraws
--------------------------------
from the Plan with respect to an Option Period, and who is still an Eligible
Employee, may elect to participate again in the Plan for any subsequent Offering
Period by delivering to the Company an Authorization pursuant to Section 3(b).
6. Termination of Employment.
-------------------------
(a) Termination of Employment Other than by Death. If the employment
---------------------------------------------
of a Participant with the Company and the Subsidiary Corporation terminates
other than by death, the Participant's participation in the Plan automatically
and without any act on the Participant's part shall terminate as of the date of
the termination of the Participant's employment. As soon as practicable after
such a termination of employment, the Company or Subsidiary Corporation
employing the Participant shall pay to the Participant the amount of the balance
in the Participant's Account, without any interest thereon. Upon a
Participant's termination of employment covered by this subsection, the
Participant's Authorization and Option under the Plan shall terminate.
(b) Termination By Death. If the employment of a Participant is
--------------------
terminated by the Participant's death, the executor of the Participant's will or
the administrator of the
6
<PAGE>
Participant's estate, by written notice to the Company, may request payment of
the balance in the Participant's Account, in which event the Company or
Subsidiary Corporation employing the Participant shall make such payment,
without any interest thereon as soon as practicable after receiving such
notice. Upon receipt of such notice, the Participant's Authorization and
Option under the Plan shall terminate. If the Company does not receive such
notice prior to the next Date of Exercise, the Participant's Option shall be
deemed to have been exercised on such Date of Exercise.
7. Restriction upon Assignment.
---------------------------
An Option granted under the Plan shall not be transferable other than by will or
the laws of descent and distribution, and is exercisable during the
Participant's lifetime only by the Participant. Except as provided in Section
6(b) hereof, an Option may not be exercised to any extent except by the
Participant. The Company shall not recognize and shall be under no duty to
recognize any assignment or alienation of the Participant's interest in the
Plan, the Participant's Option or any rights under the Participant's Option.
8. No Rights of Stockholders until Shares Issued. With respect to
---------------------------------------------
shares of Stock subject to an Option, a Participant shall not be deemed to be
a stockholder of the Company, and the Participant shall not have any of the
rights or privileges of a stockholder, until such shares have been issued to
the Participant or his or her nominee following exercise of the Participant's
Option. No adjustments shall be made for dividends (ordinary or extraordinary,
whether in cash securities, or other property) or distribution or other rights
for which the record date occurs prior to the date of such issuance, except as
otherwise expressly provided herein.
9. Changes in the Stock; Adjustments of an Option. Whenever any change
----------------------------------------------
is made in the Stock or to Options outstanding under the Plan, by reason of a
stock split, stock dividend, recapitalization or other subdivision,
combination, or reclassification of shares, appropriate action shall be taken
by the Committee to adjust accordingly the number of shares of Stock subject
to the Plan and the number and the Option Price of shares of Stock subject to
the Options outstanding under the Plan to preserve, but not increase, the
rights of Participants hereunder.
10. Use of Funds; no Interest Paid. All funds received or held by the
------------------------------
Company under the Plan shall be included in the general funds of the Company
free of any trust or other restriction and may be used for any corporate
purpose. No interest will be paid to any Participant or credited to any
Participant's Account with respect to such funds.
11. Amendment or Termination of the Plan. The Board of Directors may
------------------------------------
amend, suspend, or terminate the Plan at any time and from time to time,
provided that approval by a vote of the holders of the outstanding shares of
the Company's capital stock entitled to vote shall be required to amend the
Plan to: (a) change the number of shares of Stock that may be sold pursuant to
Options under the Plan, (b) decrease the Option Price below a price computed
in the manner stated in Section 4(b), (c) alter the requirements for
eligibility to participate in the Plan, or (d) in any manner that would cause
the Plan to no longer be an "employee stock purchase plan" within the meaning
of Section 423(b) of the Code.
7
<PAGE>
12. Administration by Committee; Rules and Regulations.
--------------------------------------------------
(a) Appointment of Committee. The Plan shall be administered by the
------------------------
Committee, which shall be composed of not less than two members of the Board of
Directors, none of whom shall be eligible to serve on the Committee, unless such
member is then a "non-employee director" within the meaning of Rule 16b-3 which
has been adopted by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended. Each member of the Committee shall serve for
a term commencing on a date specified by the Board of Directors and continuing
until the member dies or resigns or is removed from office by the Board of
Directors. The Committee at its option may utilize the services of an agent to
assist in the administration of the Plan including establishing and maintaining
an individual securities account under the Plan for each Participant.
(b) Duties and Powers of Committee. It shall be the duty of the
------------------------------
Committee to conduct the general administration of the Plan in accordance with
the provisions of the Plan. The Committee shall have the power to interpret the
Plan and the terms of the Options and to adopt such rules for the
administration, interpretation, and application of the Plan as are consistent
therewith and to interpret, amend or revoke any such rules. In its absolute
discretion, the Board may at any time and from time to time exercise any and all
rights and duties of the Committee under the Plan.
(c) Majority Rule. The Committee shall act by a majority of its
-------------
members in office. The Committee may act either by vote at a meeting or by a
memorandum or other written instrument signed by a majority of the Committee.
(d) Compensation; Professional Assistance; Good Faith Actions. All
---------------------------------------------------------
expenses and liabilities incurred by members of the Committee in connection with
the administration of the Plan shall be borne by the Company. The Committee
may, with the approval of the Board, employ attorneys, consultants, accountants,
appraisers, brokers or other persons. The Committee, the Company and its
officers and directors shall be entitled to rely upon the advice, opinions or
valuations of any such persons. All actions taken and all interpretations and
determinations made by the Committee in good faith shall be final and binding
upon all Participants, the Company and all other interested persons. No member
of the Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or the Options, and
all members of the Committee shall be fully protected by the Company in respect
to any such action, determination, or interpretation.
13. No Rights as an Employee. Nothing in the Plan shall be construed to
------------------------
give any person (including any Eligible Employee or Participant) the right to
remain in the employ of the Company, a Parent Corporation or a Subsidiary
Corporation or to affect the right of the Company, any Parent Corporation or
any Subsidiary Corporation to terminate the employment of any person
(including any Eligible Employee or Participant) at any time, with or without
cause.
14. Merger, Acquisition or Liquidation of the Company. In the event of
-------------------------------------------------
the merger or consolidation of the Company into another corporation, the
acquisition by another corporation of all or substantially all of the
Company's assets or 50% or more of the Company's then
8
<PAGE>
outstanding voting stock, the liquidation or dissolution of the Company or any
other reorganization of the Company, the Date of Exercise with respect to
outstanding Options shall be the business day immediately preceding the
effective date of such merger, consolidation, acquisition, liquidation,
dissolution, or reorganization unless the Committee shall, in its sole
discretion, provide for the assumption or substitution of such Options in a
manner complying with Section 424(a) of the Code.
15. Term; Approval by Stockholders. Subject to approval by the
------------------------------
stockholders of the Company in accordance with this Section, the Plan shall be
in effect for a term of ten (10) years commencing on the date of the initial
adoption of the Plan by the Board, unless sooner terminated in accordance with
Section 11. No Option may be granted during any period of suspension of the
Plan or after termination of the Plan. The Plan shall be submitted for the
approval of the Company's stockholders within twelve (12) months after the
date of the Board of Directors' adoption of the Plan. Options may be granted
prior to such stockholder approval; provided, however, that such Options shall
not be exercisable prior to the time when the Plan is approved by the
stockholders; and provided, further, that if such approval has not been
obtained by the end of said 12-month period, all Options previously granted
under the Plan shall thereupon expire.
16. Effect upon Other Plans. The adoption of the Plan shall not affect
-----------------------
any other compensation or incentive plans in effect for the Company, any
Parent Corporation or any Subsidiary Corporation. Nothing in this Plan shall
be construed to limit the right of the Company, any Parent Corporation or any
Subsidiary Corporation to: (a) establish any other forms of incentives or
compensation for employees of the Company, any Parent Corporation or any
Subsidiary Corporation or (b) grant or assume options otherwise than under
this Plan in connection with any proper corporate purpose, including, but not
by way of limitation, the grant or assumption of options in connection with
the acquisition, by purchase, lease, merger, consolidation or otherwise, of
the business, stock or assets of any corporation, firm or association.
17. Conditions to Issuance of Stock Certificates. The Company shall not
--------------------------------------------
be required to issue or deliver any certificate or certificates for shares of
Stock purchased upon the exercise of Options prior to fulfillment of all the
following conditions:
(a) The admission of such shares to listing on all stock exchanges, if
any, on which is then listed; and
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under the rulings or regulations of the
Securities and Exchange Commission or any other governmental regulatory body,
which the Committee shall, in its absolute discretion, deem necessary or
advisable; and
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and
9
<PAGE>
(d) The payment to the Company of all amounts which it is required to
withhold under federal, state or local law upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the exercise
of the Option as the Committee may from time to time establish for reasons of
administrative convenience.
18. Notification of Disposition. Each Participant shall give prompt
---------------------------
notice to the Company of any disposition or other transfer of any shares of
Stock purchased upon exercise of an Option if such disposition or transfer is
made: (a) within two (2) years from the Date of Grant of the Option or (b)
within one (1) year after the transfer of such shares of Stock to such
Participant upon exercise of such Option. Such notice shall specify the date
of such disposition or other transfer and the amount realized, in cash, other
property, assumption of indebtedness or other consideration, by the
Participant in such disposition or other transfer.
19. Notices. Any notice to be given under the terms of the Plan to the
-------
Company shall be addressed to the Company in care of its Secretary and any
notice to be given to any Eligible Employee or Participant shall be addressed
to such Employee at such Employee's last address as reflected in the Company's
records. By a notice given pursuant to this Section, either party may
designate a different address for notices to be given to it, him or her. Any
notice which is required to be given to an Eligible Employee or a Participant
shall, if the Eligible Employee or Participant is then deceased, be given to
the Eligible Employee's or Participant's personal representative if such
representative has previously informed the Company of his status and address
by written notice under this Section. Any notice shall have been deemed duly
given if enclosed in a properly sealed envelope or wrapper addressed as
aforesaid at the time it is deposited (with postage prepaid) in a post office
or branch post office regularly maintained by the United States Postal
Service.
10
<PAGE>
20. Headings. Headings are provided herein for convenience only and are
--------
not to serve as a basis for interpretation or construction of the Plan.
* * * * * * *
I hereby certify that the foregoing Plan was adopted by the Board of
Directors of NorthPoint Communications Holdings, Inc. on _________________,
199___.
Executed as of this ____ day of __________, 199___.
________________________________________________
* * * * * * *
I hereby certify that the foregoing Plan was approved by the
stockholders of NorthPoint Communications Holdings, Inc. on _____________,
199___.
Executed at __________, ___________ on this ___ day of _________,
199___.
________________________________________________
11
<PAGE>
EXHIBIT 10.8
March 22, 1999
The Carlyle Group
9 West 57th Street
32nd Floor
New York, NY 10019
NorthPoint Communications Holdings, Inc.
----------------------------------------
Ladies and Gentlemen:
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 Investors, LP, a Cayman Islands
limited partnership and Carlyle Venture Coinvestment, LLC, a Delaware limited
liability company (collectively, "Carlyle") purchased an aggregate of 9,915,014
-------
shares of Series C Preferred Stock of NorthPoint Communications, Inc. ("NCI"),
---
pursuant to the Purchase Agreement (as defined below).
NCI has consummated a reorganization (the "Reorganization") pursuant to
which NorthPoint became a wholly owned subsidiary of NorthPoint Communications
Holdings, Inc. (the "Company"). The Reorganization was effected by a merger
-------
between NCI and another Delaware corporation formed solely for this purpose,
which was a wholly owned subsidiary of the Company, with NCI as the surviving
corporation of such merger. As a result of the Reorganization, each of the
holders of capital stock of NCI immediately prior to the consummation of the
Reorganization became the only holders of capital stock of the Company
immediately after the consummation of the Reorganization, each holding the same
number of shares of capital stock of the Company with the same rights,
privileges, terms and conditions as the shares of capital stock of NCI held by
such holders immediately prior to the consummation of the Reorganization. The
Company owns all of the capital stock of NCI.
This letter will confirm our agreement that 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:
<PAGE>
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, 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
-2-
<PAGE>
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 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 Warrants.
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
-3-
<PAGE>
Event, whether or not the Company issues the notice or Mirror Warrants to
Carlyle as required by Section 1.
[Signature Pages Follow]
-4-
<PAGE>
Very truly yours,
NORTHPOINT COMMUNICATIONS HOLDINGS, INC.
By:
___________________________________________
Title:
Accepted and agreed:
- -------------------
CARLYLE PARTNERS II, L.P.
By: TC Group, L.L.C.
Its General Partner
By:
______________________________
Title: Managing Director
CARLYLE PARTNERS III, L.P.
By: TC Group, L.L.C.
Its General Partner
By:
______________________________
Title: Managing Director
STATE BOARD OF ADMINISTRATION OF FLORIDA
By: Carlyle Investment Management LLC
Its Manager
By:
______________________________
Title: Managing Director
CARLYLE INVESTMENT GROUP, L.P.
By: TC Group, L.L.C.
Its General Partner
By:
______________________________
Title: Managing Director
SIGNATURE PAGE TO CARLYLE MIRROR WARRANT SIDE LETTER
<PAGE>
CARLYLE INTERNATIONAL PARTNERS II, L.P.
By: TC Group, L.L.C.
Its General Partner
By:
______________________________
Title: Managing Director
CARLYLE INTERNATIONAL PARTNERS III, L.P.
By: TC Group, L.L.C.
Its General Partner
By:
______________________________
Title: Managing Director
C/S INTERNATIONAL PARTNERS
By: TC Group, L.L.C.
Its General Partner
By:
______________________________
Title: Managing Director
CARLYLE-NORTHPOINT PARTNERS, L.P.
By: TC Group, L.L.C.
Its General Partner
By:
______________________________
Title: Managing Director
CARLYLE-NORTHPOINT INTERNATIONAL PARTNERS, L.P.
By: TC Group, L.L.C.
Its General Partner
By:
______________________________
Title: Managing Director
SIGNATURE PAGE TO CARLYLE MIRROR WARRANT SIDE LETTER
<PAGE>
CARLYLE VENTURE PARTNERS, LP
By: TCG Ventures, Limited
Its General Partner
By:
______________________________
Title: Attorney in Fact
CARLYLE U.S. VENTURE PARTNERS, LP
By: TCG Ventures, LLC
Its General Partner
By:
______________________________
Title: Managing Director
C/S VENTURE INVESTORS, LP
By: TCG Ventures, Limited
Its General Partner
By:
______________________________
Title: Attorney in Fact
CARLYLE VENTURE COINVESTMENT, LLC
By: TCG Ventures, LLC
Its Manager
By:
______________________________
Title: Managing Director
SIGNATURE PAGE TO CARLYLE MIRROR WARRANT SIDE LETTER
<PAGE>
EXHIBIT 10.9
NORTHPOINT COMMUNICATIONS, INC.
- -------------------------------------------------------------------------------
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
August 13, 1997
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
SECTION 1 - Authorization and Sale of Series B Preferred Stock............ 1
1.1 Authorization.................................................... 1
1.2 Sale of Series B Preferred....................................... 1
SECTION 2 - Closing Dates; Delivery........................................ 1
2.1 Closing Dates.................................................... 1
2.2 Delivery......................................................... 2
SECTION 3 - Representations and Warranties of the Company................. 2
3.1 Organization and Standing; Certificate and By-laws............... 2
3.2 Corporate Power.................................................. 2
3.3 Capitalization................................................... 2
3.4 Authorization.................................................... 3
3.5 No Financial Statements.......................................... 3
3.6 Patents and Other Intangible Assets.............................. 3
3.7 Compliance with Other Instruments, None Burdensome, Etc.......... 4
3.8 Litigation, Etc.................................................. 4
3.9 Employees........................................................ 5
3.10 Governmental Consent, Etc....................................... 5
3.11 Offering........................................................ 5
3.12 Brokers or Finders; Other Offers................................ 5
3.13 Disclosure...................................................... 5
3.14 No Conflict of Interest......................................... 6
3.15 Subsidiaries.................................................... 6
3.16 Proprietary Information Agreements.............................. 6
3.17 Outstanding Indebtedness........................................ 7
3.18 Agreements; Action.............................................. 7
3.19 Permits......................................................... 7
3.20 Registration Rights............................................. 7
3.21 Corporate Documents............................................. 7
3.22 Title to Property and Assets.................................... 8
3.23 Insurance....................................................... 8
3.24 Minute Books.................................................... 8
3.25 Small Business Stock............................................ 8
SECTION 4 - Representations, Warranties and Covenants of the Purchasers... 8
4.1 Representations and Warranties of the Purchasers................. 8
SECTION 5 - Conditions to Closing of Purchasers........................... 9
5.1 Representations and Warranties Correct........................... 10
5.2 Covenants........................................................ 10
5.3 Compliance Certificate........................................... 10
5.4 Blue Sky......................................................... 10
5.5 Certificate of Incorporation..................................... 10
5.6 Rights Agreement................................................. 10
5.7 Opinion of Company Counsel....................................... 10
<PAGE>
5.8 Board of Directors............................................... 10
5.9 Right of First Refusal and Co-Sale Agreement..................... 10
5.10 Voting Agreement................................................ 10
5.11 Amendments to Common Stock Purchase Agreements.................. 10
SECTION 6 - Conditions to Closing of Company.............................. 11
6.1 Representations.................................................. 11
6.2 Blue Sky......................................................... 11
6.3 Certificate of Incorporation..................................... 11
6.4 Covenants........................................................ 11
6.5 Rights Agreement................................................. 11
6.6 Amendments to Common Stock Purchase Agreements................... 11
SECTION 7 - Miscellaneous................................................. 11
7.1 Governing Law.................................................... 11
7.2 Survival......................................................... 11
7.3 Successors and Assigns........................................... 11
7.4 Entire Agreement, Amendment...................................... 12
7.5 Notices, Etc..................................................... 12
7.6 Delays or Omissions.............................................. 12
7.7 California Corporate Securities Law.............................. 13
7.8 Expenses......................................................... 13
7.9 Counterparts..................................................... 13
7.10 Severability.................................................... 13
7.11 Titles and Subtitles............................................ 13
7.12 Waiver of Conflicts............................................. 13
EXHIBIT A - SCHEDULE OF PURCHASERS
EXHIBIT B - SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
EXHIBIT C - SCHEDULE OF EXCEPTIONS
EXHIBIT D - AMENDED AND RESTATED RIGHTS AGREEMENT
EXHIBIT E - FORM OF OPINION OF VENTURE LAW GROUP, A PROFESSIONAL CORPORATION
EXHIBIT F - RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT
EXHIBIT G - VOTING AGREEMENT
EXHIBIT H - FORM OF AMENDMENT TO COMMON STOCK PURCHASE AGREEMENT
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
This Agreement is made as of August 13, 1997 by and among NorthPoint
Communications, Inc., a Delaware corporation (the "Company") and the investors
-------
listed on Exhibit A to this Agreement (the "Purchasers").
--------- ----------
SECTION 1
Authorization and Sale of Series B Preferred Stock
--------------------------------------------------
1.1 Authorization. The Company will authorize the sale and issuance of up
-------------
to 16,750,000 shares of its Series B Preferred Stock (the "Shares" or "Series B
------ --------
Preferred"), having the rights, privileges and preferences as set forth in the
- ---------
Second Amended and Restated Certificate of Incorporation (the "Restated
--------
Certificate") in the form attached to this Agreement as Exhibit B.
- ----------- ---------
1.2 Sale of Series B Preferred. Subject to the terms and conditions of
--------------------------
this Agreement, each Purchaser, severally and not jointly, agrees to purchase at
the Initial Closing (as defined below), and at the Subsequent Closings (as
defined below) if required under this Agreement with respect to any such
Purchaser, and the Company agrees to sell and issue to each Purchaser, that
number of shares of the Company's Series B Preferred Stock set forth opposite
each Purchaser's name on Exhibit A to this Agreement at a purchase price of
---------
$0.67417772 per Share.
SECTION 2
Closing Dates; Delivery
-----------------------
2.1 Closing Dates. The initial closing of the purchase and sale of the
-------------
Shares under this Agreement shall be 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 13, 1997, (the "Initial Closing") or at such other time and
---------------
place upon which the Company and the Purchasers shall agree (the date of the
Initial Closing is hereinafter referred to as the "Initial Closing Date"). The
--------------------
subsequent closing(s) of the purchase and sale of the Shares under this
Agreement (the "Subsequent Closing(s)") shall take place at a time agreed upon
---------------------
by the Company and the Purchasers participating in the respective Subsequent
Closing (the date(s) of the Subsequent Closing(s) is hereinafter referred to as
the "Subsequent Closing Date(s)"), which shall be subject to the approval of the
--------------------------
Board of Directors of the Company and which shall occur in any event no later
than January 15, 1998.
For purposes of this Agreement, the terms "Closing" and "Closing Date,"
------- ------------
unless otherwise indicated, refer to the applicable closing and closing date of
the Initial Closing or the Subsequent Closing(s), as the case may be.
2.2 Delivery. At each Closing, the Company will deliver to each Purchaser
--------
a certificate or certificates representing the number of Shares to be purchased
by each Purchaser at such Closing,
<PAGE>
against delivery to the Company by each Purchaser of payment by check or wire
transfer payable to the Company in the amount set forth on such Exhibit A.
---------
SECTION 3
Representations and Warranties of the Company
- ---------------------------------------------
Except as set forth on the Schedule of Exceptions attached hereto as
Exhibit C, the Company hereby represents and warrants to the Purchasers as
- ---------
follows:
3.1 Organization and Standing; Certificate and Bylaws. The Company is
-------------------------------------------------
a corporation duly organized and 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 furnished
Purchaser with copies of its Certificate of Incorporation and Bylaws. Said
copies are true, correct and complete and contain all amendments through the
Closing Date.
3.2 Corporate Power. The Company will have at the Closing Date all
---------------
requisite legal and corporate power to execute and deliver this Agreement, to
sell and issue the Shares hereunder, to issue the Common Stock issuable upon
conversion of the Shares and to carry out and perform its obligations under the
terms of this Agreement.
3.3 Capitalization. The authorized capital stock of the Company
--------------
consists or will, upon the filing of the Restated Certificate, consist of:
50,000,000 shares of Common Stock, of which 10,089 000 shares are issued and
outstanding prior to the Initial Closing after giving effect to the 2.0178 for
one stock split effected by the Restated Certificate; and 22,820,000 shares of
Preferred Stock, 5,820,000 of which have been designated Series A Preferred
Stock, all of which are issued and outstanding prior to the Initial Closing and
all of which shall be surrendered at the Initial Closing in payment for the
purchase price of shares of Series B Preferred and 17,000,000 of which have
been designated Series B Preferred Stock, none of which are issued and
outstanding prior to the Initial Closing. All issued and outstanding shares
have been duly authorized and validly issued, and are fully paid and
nonassessable. The Company has reserved 16,750,000 shares of Series B Preferred
for issuance hereunder, and 22,820,000 shares of Common Stock for issuance upon
conversion of the Preferred Stock. The Series B Preferred has 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. Except as described above, there
are no preemptive rights, options or warrants or other conversion privileges or
rights presently outstanding to purchase any of the authorized but unissued
stock of the Company. The Company is not obligated to repurchase any shares of
its capital stock or any other securities.
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,
-2-
<PAGE>
the Amended and Restated Rights Agreement in the form attached hereto as
Exhibit D (the "Rights Agreement"), the Right of First Refusal and Co-Sale
- --------- ----------------
Agreement in the form attached hereto as Exhibit F (the "Co-Sale Agreement")
--------- -----------------
and the Voting Agreement in the form attached hereto as Exhibit G (the "Voting
--------- ------
Agreement") 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, the Rights
Agreement, the Co-Sale Agreement and the Voting Agreement has been taken or will
be taken prior to the Closing. This Agreement, the Rights Agreement, the Co-Sale
Agreement and the Voting Agreement 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 this Agreement, will be validly issued and
will be 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 this Agreement and 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.
3.5 No Financial Statements. The Company has not prepared any
-----------------------
historical balance sheet, income statement, statement of cash flows or
stockholders' equity or other financial statement.
3.6 Patents and Other Intangible Assets. As of the Closing, 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. 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 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,
-3-
<PAGE>
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.
3.7 Compliance with Other Instruments, None Burdensome, Etc. The
-------------------------------------------------------
Company is not in violation 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
execution, delivery and performance of and compliance with this Agreement, 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 material violation of, or
conflict with, or constitute a material default under, 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.
3.8 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 threat thereof), which, either in any case or in
the aggregate, might result in any material adverse change in the business
or financial condition of the Company or any of its properties or assets,
or in any material impairment of the right or ability of the Company to
carry on its business as now conducted or as proposed to be conducted, or
in any material liability on the part of the Company, and none which
questions the validity of this Agreement, the Rights Agreement, the Co-Sale
Agreement or the Voting Agreement 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.
3.9 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. The Company does not have any collective bargaining agreements
covering any of its employees. The Company has no employee benefit plans
presently in force with respect to profit-sharing, pensions, stock options or
other stock benefits. The Company is not aware of any key
-4-
<PAGE>
employee of the Company who has any plans to terminate his or her employment
with the Company. All employees of the Company are employed on an at-will basis
by the Company.
3.10 Governmental Consent, Etc. No consent, approval or authorization
--------------------------
of or designation, declaration or filing with any governmental authority on the
part of the Company is required in connection with the valid execution and
delivery of this Agreement, 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, 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.
3.11 Offering. Subject to the accuracy of the Purchasers'
--------
representations in Section 4 of this Agreement and in written responses to the
Company's inquiries, 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").
--------------
3.12 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.
3.13 Disclosure. The Company has fully provided each Purchaser with all
----------
the information that such Purchaser has requested for deciding whether to
purchase the Series B Preferred and all information that the Company believes is
reasonably necessary to enable such Purchaser to make such decision. To the
best of the Company's knowledge, after reasonable investigation, no
representation or warranty of the Company contained in this Agreement and the
Exhibits attached hereto, or any certificate furnished or to be furnished to the
Purchasers at the Closing 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.
3.14 No Conflict of Interest. The Company is not indebted, directly or
-----------------------
indirectly, to any of its officers or directors or to their respective spouses
or children, in any amount whatsoever. None of said officers or directors, or
any members of their immediate families, are indebted 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 or director or any member of
their immediate families, 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.
-5-
<PAGE>
3.15 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.
3.16 Proprietary Information Agreements. Each employee, officer and
----------------------------------
consultant of the Company has executed a Confidential Information and
Invention Assignment Agreement in the form provided to counsel to the
Purchasers.
3.17 Outstanding Indebtedness. The Company has not (i)
------------------------
incurred any expenses in excess of $10,000, (ii) incurred any
indebtedness in excess of $10,000, or (iii) sold, exchanged or
otherwise disposed of any of its assets or rights.
3.18 Agreements; Action. Except for agreements explicitly
------------------
contemplated hereby and by the Rights Agreement, the Co-Sale Agreement
and the Voting Agreement, there are no agreements, understandings or
proposed transactions between the Company and any of its officers,
directors, affiliates, or 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 $10,000, 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.
3.19 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 condition of the
Company, and the Company believes it can obtain, without undue burden or
expense, any similar authority for the conduct of its business as planned
to be conducted. The Company is not in default in any material respect
under any of such franchises, permits, licenses, or other similar
authority.
3.20 Registration Rights. Except as provided in the Rights Agreement,
-------------------
the Company has not granted or agreed to grant any registration rights,
including piggyback rights, to any person or entity.
-6-
<PAGE>
3.21 Corporate Documents. Except for amendments necessary to satisfy
-------------------
representations and warranties or conditions contained herein (the form of which
amendments has been approved by counsel to the Purchasers), the Restated
Certificate and Bylaws of the Company are in the form previously provided to
counsel for the Purchasers.
3.22 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.
3.23 Insurance. The Company has in full force and effect fire and
---------
casualty insurance policies, 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.
3.24 Minute Books. The copies of the minutes of the Company provided
------------
to counsel for the Purchasers contain a complete summary of all meetings of
directors and stockholders of the Company since the time of incorporation
of the Company and reflect all transactions referred to in such minutes
accurately in all material respects.
3.25 Small Business Stock. The Shares will qualify as "Qualified Small
-------------------- ---------------
Business Stock" as defined in Section 1202(c) of the Internal Revenue Code of
- --------------
1986, as amended as of the date hereof (the "Code"), provided that the Company
----
makes no representation regarding the effect on qualification of the Shares as
Qualified Small Business Stock under Section 1202 of the Code of the
transactions contemplated by this Agreement, the Second Series B Preferred Stock
Purchase Agreement of even date herewith and all related agreements.
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 the purchase of
the Shares 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
-7-
<PAGE>
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.
(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 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.
-8-
<PAGE>
SECTION 5
Conditions to Closing of Purchasers
- -----------------------------------
Each Purchaser's obligation to purchase the Shares at the Closing is, at
the option of the Purchaser, subject to the fulfillment or waiver as of the
Closing Date of the following conditions:
5.1 Representations and Warranties Correct. The representations and
--------------------------------------
warranties made by the Company in Section 3 of this Agreement shall be true and
correct in all material respects when made, and shall be true and correct in all
material respects on the Closing Date with the same force and effect as if they
had been made on and as of said date.
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 respects.
5.3 Compliance Certificate. The Company shall have delivered to each
----------------------
Purchaser a certificate of the Company, executed by the President of the
Company, dated the Closing Date, and certifying, among other things, to 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. The Restated Certificate shall have
----------------------------
been filed with the Secretary of State of the State of Delaware.
5.6 Rights Agreement. The Company shall have executed and delivered
----------------
the Rights Agreement.
5.7 Opinion of Company Counsel. The Purchasers shall have received from
--------------------------
Venture Law Group, A Professional Corporation, counsel for the Company, an
opinion, dated as of the Closing, in substantially the form of Exhibit E.
---------
5.8 Board of Directors. As of the Closing, the Board of Directors of the
------------------
Company shall be comprised of Michael Malaga, Peter Wagner, Roger Evans and
Andrew Rachleff.
5.9 Right of First Refusal and Co-Sale Agreement. The Company, each
--------------------------------------------
Purchaser, and William Euske, Robert Flood, Steven Gorosh, Nathan Gregory,
Michael Malaga and Timothy Monahan shall have executed and delivered the Co-Sale
Agreement.
5.10 Voting Agreement. Each Purchaser shall have executed and delivered
----------------
the Voting Agreement.
5.11 Amendments to Common Stock Purchase Agreements. Each of Robert Flood,
----------------------------------------------
Steven Gorosh, Nathan Gregory, Michael Malaga and Timothy Monahan shall have
executed and delivered an Amendment to Common Stock Purchase Agreement in the
form attached hereto as Exhibit H.
---------
-9-
<PAGE>
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:
6.1 Representations. The representations made by each Purchaser 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. The Restated Certificate shall have
----------------------------
been filed with the Secretary of State of the State of Delaware.
6.4 Covenants. 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. Each such Purchaser shall have executed and
----------------
delivered the Rights Agreement.
6.6 Amendments to Common Stock Purchase Agreements. Each of Robert
----------------------------------------------
Flood, Steven Gorosh, Nathan Gregory, Michael Malaga and Timothy Monahan shall
have executed and delivered an Amendment to Common Stock Purchase Agreement in
the form attached hereto as Exhibit H.
---------
SECTION 7
Miscellaneous
- -------------
7.1 Governing Law. This Agreement shall be governed in all respects by
-------------
the laws of the State of California.
7.2 Survival. The representations, warranties, covenants and
--------
agreements made in this Agreement shall survive any investigation made by the
Purchasers and the closing of the transactions contemplated hereby.
7.3 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 the
Purchasers to purchase the Shares shall not be assignable without the prior
written consent of the Company.
-10-
<PAGE>
7.4 Entire Agreement, Amendment. This Agreement and the other
---------------------------
documents delivered pursuant to this Agreement 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 a majority of the then outstanding Shares (or
shares of Common Stock issued upon conversion of the Shares) may, with the
written consent of the Company, waive, modify or amend on behalf of all holders,
any provisions hereof benefiting such holders, so long as the effect thereof
will be that all such holders will be treated equally.
7.5 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 or
by messenger, addressed (a) if to a Purchaser, at such Purchaser's address set
forth on Exhibit A, or, at such other address as such Purchaser shall have
---------
furnished to the Company in writing, or (b) if to any other holder of any
Shares, at such address as such holder shall have furnished the Company in
writing, or, until any such holder so furnishes an address to the Company, then
to and at the address of the last holder of such Shares who has so furnished an
address 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 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.
7.6 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.
7.7 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
-11-
<PAGE>
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.
7.8 Expenses. At the Initial Closing, the Company shall pay the
--------
reasonable fees and expenses of one special counsel for the Purchasers incurred
with respect to this Agreement, the documents referred to herein and the
transactions contemplated hereby and thereby, provided such fees and expenses do
not exceed $20,000.
7.9 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.
7.10 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.
7.11 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.
7.12 Waiver of Conflicts. Each party to this Agreement acknowledges
-------------------
that Venture Law Group, A Professional Corporation, counsel for the Company, has
in the past performed and may continue to perform legal services for certain of
the Purchasers in matters unrelated to the transactions described in this
Agreement, including the representation of such Purchasers in venture capital
financings and other matters. Accordingly, each party to this Agreement hereby
(a) acknowledges that they have had an opportunity to ask for information
relevant to this disclosure; and (b) gives its informed consent to Venture Law
Group's representation of certain of the Purchasers in such unrelated matters
and to Venture Law Group's representation of the Company in connection with this
Agreement and the transactions contemplated hereby.
-12-
<PAGE>
The foregoing 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"
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
-13-
<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
-14-
<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)
-15-
<PAGE>
SUBSEQUENT CLOSING:
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)
Dated: October 7, 1997
-16-
<PAGE>
EXHIBIT A
---------
SCHEDULE OF PURCHASERS
----------------------
Initial Closing - August 13, 1997
- ---------------
<TABLE>
<CAPTION>
No. of Series B Shares to Check or Wire
Purchaser be Purchased Amount
- ---------------------------------- -------------------------- ------------------
<S> <C> <C>
Benchmark Capital Partners, L.P. 4,304,806 $2,902,204.58
2480 Sand Hill Road
Menlo Park, CA 94025
Benchmark Founders' Fund, L.P. 601,661 $ 405,625.97
2480 Sand Hill Road
Menlo Park, CA 94025
Accel V L.P. 3,851,576 $2,596,646.75
One Embarcadero Center
San Francisco, CA 94111
Accel Internet/Strategic 510,274 $ 344,014.35
Technology Fund L.P.
One Embarcadero Center
San Francisco, CA 94111
Accel Keiretsu V. L.P. 201,165 $ 135,621.11
One Embarcadero Center
San Francisco, CA 94111
Accel Investors' 97 L.P. 235,510 $ 158,775.56
One Embarcadero Center
San Francisco, CA 94111
Ellmore C. Patterson Partners 107,942 $ 72,772.13
One Embarcadero Center
San Francisco, CA 94111
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Greylock IX Limited Partnership 4,906,466 $3,307,829.90
755 Page Mill Road
Bldg. A, Suite 100
Palo Alto, CA 94304
Stanford University 140,185 $ 94,509.54
2770 Sand Hill Road
Menlo Park, CA 94025
William Euske 74,164 $ 49,999.72
4016 Freed Avenue
San Jose, CA 95117
Robert Flood 74,164 $ 49,999.72
3633 Hillcrest Drive
Belmont, CA 94002
Nathan Gregory 222,493 $ 149,999.82
494 La Baree Drive
Milpitas, CA 95035
Michael Malaga 44,499 $ 30,000.23
222 Kearny Street, Suite 400
San Francisco, CA 94108
Timothy Monahan 222,493 $ 149,999.82
222 Kearny Street, Suite 400
San Francisco, CA 94108
VLG Investments 1997 17,799 $ 11,999.69
2800 Sand Hill Road
Menlo Park, CA 94025
Cathryn S. Chinn 4,450 $ 3,000.09
2800 Sand Hill Road
Menlo Park, CA 94025
</TABLE>
-18-
<PAGE>
EXHIBIT A
---------
SCHEDULE OF PURCHASERS
----------------------
Subsequent Closing - October 7, 1997
- ------------------
<TABLE>
<CAPTION>
No. of Series B Shares to Check or Wire
Purchaser be Purchased Amount
- ---------------------------------- -------------------------- ------------------
<S> <C> <C>
Paul A. Larango and Ann W. 50,000 $33,708.89
Zeichner, Trustees of the
Zeichner-Larango Family Trust,
UDT, dated
July 28, 1997
</TABLE>
-19-
<PAGE>
EXHIBIT 10.10
NORTHPOINT COMMUNICATIONS, INC.
- --------------------------------------------------------------------------------
SECOND SERIES B PREFERRED STOCK PURCHASE AGREEMENT
August 13, 1997
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1 - Authorization and Sale of Series B Preferred Stock 1
1.1 Authorization 1
1.2 Sale of Series B Preferred 1
SECTION 2 - Closing Dates; Delivery 1
2.1 Closing Dates 1
2.2 Delivery 2
SECTION 3 - Representations and Warranties of the Company 2
3.1 Organization and Standing; Certificate and By-laws 2
3.2 Corporate Power 2
3.3 Capitalization 2
3.4 Authorization 3
3.5 No Financial Statements 3
3.6 Patents and Other Intangible Assets 3
3.7 Compliance with Other Instruments, None Burdensome, Etc. 4
3.8 Litigation, Etc. 4
3.9 Employees 5
3.10 Governmental Consent, Etc. 5
3.11 Offering 5
3.12 Brokers or Finders; Other Offers 5
3.13 Disclosure 6
3.14 No Conflict of Interest 6
3.15 Subsidiaries 6
3.16 Proprietary Information Agreements 6
3.17 Outstanding Indebtedness 6
3.18 Agreements; Action 6
3.19 Permits 7
3.20 Registration Rights 7
3.21 Corporate Documents 7
3.22 Title to Property and Assets 7
3.23 Insurance 8
3.24 Minute Books 8
SECTION 4 - Representations, Warranties and Covenants of the Purchasers 8
4.1 Representations and Warranties of the Purchasers 8
SECTION 5 - Conditions to Closing of Purchasers 9
5.1 Representations and Warranties Correct 9
5.2 Covenants 10
5.3 Compliance Certificate 10
5.4 Blue Sky 10
5.5 Certificate of Incorporation 10
5.6 Rights Agreement 10
5.7 Opinion of Company Counsel 10
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5.8 Board of Directors 10
5.9 Right of First Refusal and Co-Sale Agreement 10
5.10 Voting Agreement 10
5.11 Amendments to Common Stock Purchase Agreements 10
SECTION 6 - Conditions to Closing of Company 11
6.1 Representations 11
6.2 Blue Sky 11
6.3 Certificate of Incorporation 11
6.4 Covenants 11
6.5 Rights Agreement 11
6.6 Amendments to Common Stock Purchase Agreements 11
SECTION 7 - Miscellaneous 11
7.1 Governing Law 11
7.2 Survival 11
7.3 Successors and Assigns 11
7.4 Entire Agreement, Amendment 12
7.5 Notices, Etc. 12
7.6 Delays or Omissions 12
7.7 California Corporate Securities Law 13
7.8 Expenses 13
7.9 Counterparts 13
7.10 Severability 13
7.11 Titles and Subtitles 13
7.12 Waiver of Conflicts 13
</TABLE>
EXHIBIT A - SCHEDULE OF PURCHASERS
EXHIBIT B - SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
EXHIBIT C - SCHEDULE OF EXCEPTIONS
EXHIBIT D - AMENDED AND RESTATED RIGHTS AGREEMENT
EXHIBIT E - FORM OF OPINION OF VENTURE LAW GROUP, A PROFESSIONAL CORPORATION
EXHIBIT F - RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT
EXHIBIT G - VOTING AGREEMENT
EXHIBIT H - FORM OF AMENDMENT TO COMMON STOCK PURCHASE AGREEMENT
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
SECOND SERIES B PREFERRED STOCK PURCHASE AGREEMENT
This Agreement is made as of August 13, 1997 by and among NorthPoint
Communications, Inc., a Delaware corporation (the "Company") and the investors
-------
listed on Exhibit A to this Agreement (the "Purchasers").
--------- ----------
SECTION 1
Authorization and Sale of Series B Preferred Stock
--------------------------------------------------
1.1 Authorization. The Company will authorize the sale and issuance of
-------------
up to 16,750,000 shares of its Series B Preferred Stock (the "Shares" or "Series
------ ------
B Preferred"), having the rights, privileges and preferences as set forth in the
- -----------
Second Amended and Restated Certificate of Incorporation (the "Restated
--------
Certificate") in the form attached to this Agreement as Exhibit B.
- ----------- ---------
1.2 Sale of Series B Preferred. Subject to the terms and conditions of
--------------------------
this Agreement, each Purchaser, severally and not jointly, agrees to purchase at
the Initial Closing (as defined below), and at the Subsequent Closings (as
defined below) if required under this Agreement with respect to any such
Purchaser, and the Company agrees to sell and issue to each Purchaser, that
number of shares of the Company's Series B Preferred Stock set forth opposite
each Purchaser's name on Exhibit A to this Agreement at a purchase price of
---------
$0.67417772 per Share.
SECTION 2
Closing Dates; Delivery
-----------------------
2.1 Closing Dates. The initial closing of the purchase and sale of the
-------------
Shares under this Agreement shall be 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 13, 1997, (the "Initial Closing") or at such other time and
---------------
place upon which the Company and the Purchasers shall agree (the date of the
Initial Closing is hereinafter referred to as the "Initial Closing Date"). The
--------------------
subsequent closing(s) of the purchase and sale of the Shares under this
Agreement (the "Subsequent Closing(s)") shall take place at a time agreed upon
---------------------
by the Company and the Purchasers participating in the respective Subsequent
Closing (the date(s) of the Subsequent Closing(s) is hereinafter referred to as
the "Subsequent Closing Date(s)"), which shall be subject to the approval of the
--------------------------
Board of Directors of the Company and which shall occur in any event no later
than January 15, 1998.
For purposes of this Agreement, the terms "Closing" and "Closing Date,"
------- ------------
unless otherwise indicated, refer to the applicable closing and closing date of
the Initial Closing or the Subsequent Closing(s), as the case may be.
<PAGE>
2.2 Delivery. At each Closing, the Company will deliver to each
--------
Purchaser a certificate or certificates representing the number of Shares to be
purchased by each Purchaser at such Closing, against delivery to the Company by
each Purchaser of payment by check or wire transfer payable to the Company in
the amount set forth on such Exhibit A.
---------
SECTION 3
Representations and Warranties of the Company
- ---------------------------------------------
Except as set forth on the Schedule of Exceptions attached hereto as
Exhibit C, the Company hereby represents and warrants to the Purchasers as
- ---------
follows:
3.1 Organization and Standing; Certificate and Bylaws. The Company is
-------------------------------------------------
a corporation duly organized and 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 furnished
Purchaser with copies of its Certificate of Incorporation and Bylaws. Said
copies are true, correct and complete and contain all amendments through the
Closing Date.
3.2 Corporate Power. The Company will have at the Closing Date all
---------------
requisite legal and corporate power to execute and deliver this Agreement, to
sell and issue the Shares hereunder, to issue the Common Stock issuable upon
conversion of the Shares and to carry out and perform its obligations under the
terms of this Agreement.
3.3 Capitalization. The authorized capital stock of the Company
--------------
consists or will, upon the filing of the Restated Certificate, consist of:
50,000,000 shares of Common Stock, of which 10,089 000 shares are issued and
outstanding prior to the Initial Closing after giving effect to the 2.0178 for
one stock split effected by the Restated Certificate; and 22,820,000 shares of
Preferred Stock, 5,820,000 of which have been designated Series A Preferred
Stock, all of which are issued and outstanding prior to the Initial Closing and
all of which shall be surrendered at the Initial Closing in payment for the
purchase price of shares of Series B Preferred and 17,000,000 of which have
been designated Series B Preferred Stock, none of which are issued and
outstanding prior to the Initial Closing. All issued and outstanding shares
have been duly authorized and validly issued, and are fully paid and
nonassessable. The Company has reserved 16,750,000 shares of Series B Preferred
for issuance hereunder, and 22,820,000 shares of Common Stock for issuance upon
conversion of the Preferred Stock. The Series B Preferred has 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. Except as described above, there
are no preemptive rights, options or
-2-
<PAGE>
warrants or other conversion privileges or rights presently outstanding to
purchase any of the authorized but unissued stock of the Company. The Company is
not obligated to repurchase any shares of its capital stock or any other
securities.
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 Amended and Restated Rights
Agreement in the form attached hereto as Exhibit D (the "Rights Agreement"), the
--------- ----------------
Right of First Refusal and Co-Sale Agreement in the form attached hereto as
Exhibit F (the "Co-Sale Agreement") and the Voting Agreement in the form
- --------- -----------------
attached hereto as Exhibit G (the "Voting Agreement") 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, the Rights Agreement, the Co-Sale
Agreement and the Voting Agreement has been taken or will be taken prior to the
Closing. This Agreement, the Rights Agreement, the Co-Sale Agreement and the
Voting Agreement 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 this Agreement, will be validly issued and will be 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 this Agreement and 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.
3.5 No Financial Statements. The Company has not prepared any
-----------------------
historical balance sheet, income statement, statement of cash flows or
stockholders' equity or other financial statement.
3.6 Patents and Other Intangible Assets. As of the Closing, 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. 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
-3-
<PAGE>
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
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.
3.7 Compliance with Other Instruments, None Burdensome, Etc. The
-------------------------------------------------------
Company is not in violation 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
execution, delivery and performance of and compliance with this Agreement, 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 material violation of, or
conflict with, or constitute a material default under, 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.
3.8 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 threat thereof), which, either in any case or in
the aggregate, might result in any material adverse change in the business
or financial condition of the Company or any of its properties or assets,
or in any material impairment of the right or ability of the Company to
carry on its business as now conducted or as proposed to be conducted, or
in any material liability on the part of the Company, and none which
questions the validity of this Agreement, the Rights Agreement, the Co-Sale
Agreement or the Voting Agreement 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
-4-
<PAGE>
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.
3.9 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. The Company does not have any collective bargaining agreements
covering any of its employees. The Company has no employee benefit plans
presently in force with respect to profit-sharing, pensions, stock options or
other stock benefits. The Company is not aware of any key employee of the
Company who has any plans to terminate his or her employment with the Company.
All employees of the Company are employed on an at-will basis by the Company.
3.10 Governmental Consent, Etc. No consent, approval or authorization
--------------------------
of or designation, declaration or filing with any governmental authority on the
part of the Company is required in connection with the valid execution and
delivery of this Agreement, 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, 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.
3.11 Offering. Subject to the accuracy of the Purchasers'
--------
representations in Section 4 of this Agreement and in written responses to the
Company's inquiries, 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").
--------------
3.12 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.
3.13 Disclosure. The Company has fully provided each Purchaser with
----------
all the information that such Purchaser has requested for deciding whether to
purchase the Series B Preferred and all information that the Company believes is
reasonably necessary to enable such Purchaser to make such decision. To the best
of the Company's knowledge, after reasonable investigation, no representation or
warranty of the Company contained in this Agreement and the Exhibits attached
hereto, or any certificate furnished or to be furnished to the Purchasers at the
-5-
<PAGE>
Closing 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.
3.14 No Conflict of Interest. The Company is not indebted, directly or
-----------------------
indirectly, to any of its officers or directors or to their respective spouses
or children, in any amount whatsoever. None of said officers or directors, or
any members of their immediate families, are indebted 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 or director or any member of
their immediate families, 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.
3.15 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.
3.16 Proprietary Information Agreements. Each employee, officer and
----------------------------------
consultant of the Company has executed a Confidential Information and
Invention Assignment Agreement in the form provided to counsel to the
Purchasers.
3.17 Outstanding Indebtedness. The Company has not (i)
------------------------
incurred any expenses in excess of $10,000, (ii) incurred any
indebtedness in excess of $10,000, or (iii) sold, exchanged or
otherwise disposed of any of its assets or rights.
3.18 Agreements; Action. Except for agreements explicitly
------------------
contemplated hereby and by the Rights Agreement, the Co-Sale Agreement
and the Voting Agreement, there are no agreements, understandings or
proposed transactions between the Company and any of its officers,
directors, affiliates, or 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 $10,000, 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
-6-
<PAGE>
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.
3.19 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 condition of the
Company, and the Company believes it can obtain, without undue burden or
expense, any similar authority for the conduct of its business as planned
to be conducted. The Company is not in default in any material respect
under any of such franchises, permits, licenses, or other similar
authority.
3.20 Registration Rights. Except as provided in the Rights
Agreement, the Company has not granted or agreed to grant any registration
rights, including piggyback rights, to any person or entity.
3.21 Corporate Documents. Except for amendments necessary to satisfy
-------------------
representations and warranties or conditions contained herein (the form of which
amendments has been approved by counsel to the Purchasers), the Restated
Certificate and Bylaws of the Company are in the form previously provided to
counsel for the Purchasers.
3.22 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.
3.23 Insurance. The Company has in full force and effect fire and
---------
casualty insurance policies, 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.
3.24 Minute Books. The copies of the minutes of the Company
------------
provided to counsel for the Purchasers contain a complete summary of all
meetings of directors and stockholders of the Company since the time of
incorporation of the Company and reflect all transactions referred to in
such minutes accurately in all material respects.
-7-
<PAGE>
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 the purchase of
the Shares 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.
(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
-8-
<PAGE>
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
-------------
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.
SECTION 5
Conditions to Closing of Purchasers
- -----------------------------------
Each Purchaser's obligation to purchase the Shares at the Closing is, at
the option of the Purchaser, subject to the fulfillment or waiver as of the
Closing Date of the following conditions:
5.1 Representations and Warranties Correct. The representations and
--------------------------------------
warranties made by the Company in Section 3 of this Agreement shall be true and
correct in all material respects when made, and shall be true and correct in all
material respects on the Closing Date with the same force and effect as if they
had been made on and as of said date.
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 respects.
5.3 Compliance Certificate. The Company shall have delivered to each
----------------------
Purchaser a certificate of the Company, executed by the President of the
Company, dated the Closing Date, and certifying, among other things, to 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. The Restated Certificate shall have
----------------------------
been filed with the Secretary of State of the State of Delaware.
-9-
<PAGE>
5.6 Rights Agreement. The Company shall have executed and delivered
----------------
the Rights Agreement.
5.7 Opinion of Company Counsel. The Purchasers shall have received from
--------------------------
Venture Law Group, A Professional Corporation, counsel for the Company, an
opinion, dated as of the Closing, in substantially the form of Exhibit E.
---------
5.8 Board of Directors. As of the Closing, the Board of Directors of the
------------------
Company shall be comprised of Michael Malaga, Peter Wagner, Roger Evans and
Andrew Rachleff.
5.9 Right of First Refusal and Co-Sale Agreement. The Company, each
--------------------------------------------
Purchaser, and William Euske, Robert Flood, Steven Gorosh, Nathan Gregory,
Michael Malaga and Timothy Monahan shall have executed and delivered the Co-Sale
Agreement.
5.10 Voting Agreement. Each Purchaser shall have executed and delivered
----------------
the Voting Agreement.
5.11 Amendments to Common Stock Purchase Agreements. Each of Robert Flood,
----------------------------------------------
Steven Gorosh, Nathan Gregory, Michael Malaga and Timothy Monahan shall have
executed and delivered an Amendment to Common Stock Purchase Agreement in the
form attached hereto as Exhibit H.
---------
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:
6.1 Representations. The representations made by each Purchaser 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. The Restated Certificate shall have
----------------------------
been filed with the Secretary of State of the State of Delaware.
6.4 Covenants. 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.
-10-
<PAGE>
6.5 Rights Agreement. Each such Purchaser shall have executed and
----------------
delivered the Rights Agreement.
6.6 Amendments to Common Stock Purchase Agreements. Each of Robert
----------------------------------------------
Flood, Steven Gorosh, Nathan Gregory, Michael Malaga and Timothy Monahan shall
have executed and delivered an Amendment to Common Stock Purchase Agreement in
the form attached hereto as Exhibit H.
---------
SECTION 7
Miscellaneous
- -------------
7.1 Governing Law. This Agreement shall be governed in all respects by
-------------
the laws of the State of California.
7.2 Survival. The representations, warranties, covenants and
--------
agreements made in this Agreement shall survive any investigation made by the
Purchasers and the closing of the transactions contemplated hereby.
7.3 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 the
Purchasers to purchase the Shares shall not be assignable without the prior
written consent of the Company.
7.4 Entire Agreement, Amendment. This Agreement and the other
---------------------------
documents delivered pursuant to this Agreement 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 a majority of the then outstanding Shares (or
shares of Common Stock issued upon conversion of the Shares) may, with the
written consent of the Company, waive, modify or amend on behalf of all holders,
any provisions hereof benefiting such holders, so long as the effect thereof
will be that all such holders will be treated equally.
7.5 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 or
by messenger, addressed (a) if to a Purchaser, at such Purchaser's address set
forth on Exhibit A, or, at such other address as such Purchaser shall have
---------
furnished to the Company in writing, or (b) if to any other holder of any
Shares, at such address as such holder shall have furnished the Company in
writing, or, until any such holder so furnishes an address to the Company, then
to and at the address of the last holder of such Shares
-11-
<PAGE>
who has so furnished an address 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 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.
7.6 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.
7.7 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 RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
7.8 Expenses. The Company and the Purchasers shall each bear their own
--------
expenses incurred on their behalf with respect to this Agreement and the
transactions contemplated hereby.
7.9 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.
7.10 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.
-12-
<PAGE>
7.11 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.
7.12 Waiver of Conflicts. Each party to this Agreement acknowledges
-------------------
that Venture Law Group, A Professional Corporation, counsel for the Company, has
in the past performed and may continue to perform legal services for certain of
the Purchasers in matters unrelated to the transactions described in this
Agreement, including the representation of such Purchasers in venture capital
financings and other matters. Accordingly, each party to this Agreement hereby
(a) acknowledges that they have had an opportunity to ask for information
relevant to this disclosure; and (b) gives its informed consent to Venture Law
Group's representation of certain of the Purchasers in such unrelated matters
and to Venture Law Group's representation of the Company in connection with this
Agreement and the transactions contemplated hereby.
-13-
<PAGE>
The foregoing 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"
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
-14-
<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
-15-
<PAGE>
EXHIBIT A
---------
SCHEDULE OF PURCHASERS
----------------------
Initial Closing - August 13, 1997
- ---------------
<TABLE>
<CAPTION>
No. of Series A
No. of Series B Shares to Shares to
Purchaser be Purchased be Surrendered
- -------------------------------- ------------------------- ----------------------
<S> <C> <C>
Benchmark Capital Partners, L.P. 250,090 1,686,048.2
2480 Sand Hill Road
Suite 200
Menlo Park, CA 94025
Benchmark Founders' Fund, L.P. 34,953 235,650.1
2480 Sand Hill Road
Suite 200
Menlo Park, CA 94025
Accel V L.P. 223,759 1,508,533.1
One Embarcadero Center
San Francisco, CA 94111
Accel Internet/Strategic 29,645 199,856.6
Technology Fund L.P.
One Embarcadero Center
San Francisco, CA 94111
Accel Keiretsu V. L.P. 11,687 78,789.7
One Embarcadero Center
San Francisco, CA 94111
Accel Investors' 97 L.P. 13,682 92,241.3
One Embarcadero Center
San Francisco, CA 94111
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Ellmore C. Patterson Partners 6,271 42,277.3
One Embarcadero Center
San Francisco, CA 94111
Greylock IX Limited Partnership 285,043 1,921,698
755 Page Mill Road
Bldg. A, Suite 100
Palo Alto, CA 94304
Stanford University 8,144 54,905.7
2770 Sand Hill Road
Menlo Park, CA 94025
</TABLE>
-17-
<PAGE>
Exhibit 10.11
GUARANTY
Dated March 22, 1999
from
NORTHPOINT COMMUNICATIONS HOLDINGS, INC.
as Guarantor
-- ---------
in favor of
THE PURCHASERS REFERRED TO IN
THE NOTE PURCHASE AGREEMENT REFERRED TO HEREIN
<PAGE>
T A B L E O F C O N T E N T S
Section Page
1. Guaranty; Limitation of Liability................................... 1
2. Guaranty Absolute................................................... 2
3. Waivers and Acknowledgments......................................... 3
4. Subrogation......................................................... 3
5. Payments Free and Clear of Taxes, Etc............................... 4
6. Representations, Warranties and Covenants........................... 6
7. Amendments, Etc..................................................... 6
8. Notices, Etc........................................................ 7
9. No Waiver; Remedies................................................. 7
10. Indemnification..................................................... 7
11. Continuing Guaranty; Assignments under the Note Purchase Agreement.. 7
12. Governing Law; Jurisdiction; Waiver of Jury Trial, Etc.............. 7
<PAGE>
GUARANTY
GUARANTY dated March 22, 1999, made by NorthPoint Communications Holdings,
Inc., a Delaware corporation (the "Guarantor"), in favor of the Purchasers (as
---------
defined in the Note Purchase Agreement referred to below).
PRELIMINARY STATEMENT
The Purchasers are parties to the Note Purchase Agreement dated as of July
10, 1998 (said Agreement, as it may hereafter be amended, supplemented or
otherwise modified from time to time, being the "Note Purchase Agreement"; the
-----------------------
terms defined therein and not otherwise defined herein being used herein as
therein defined) with NorthPoint Communications, Inc., a Delaware corporation
(the "Company").
-------
The Company has consummated a reorganization (the "Reorganization")
--------------
pursuant to which the Company became a wholly owned subsidiary of the Guarantor.
The Reorganization was effected by a merger between the Company and another
Delaware corporation formed solely for this purpose, which was a wholly owned
subsidiary of the Guarantor, with the Company as the surviving corporation of
such merger. As a result of the Reorganization, each of the holders of capital
stock of the Company immediately prior to the consummation of the Reorganization
became the only holders of capital stock of the Guarantor immediately after the
consummation of the Reorganization, each holding the same number of shares of
capital stock of the same class of the Guarantor with the same rights,
privileges, terms and conditions as shares of capital stock of the Company held
by such holders immediately prior to the consummation of the Reorganization.
The Guarantor owns all of the capital stock of the Company and has no other
significant assets.
In order to permit the Reorganization, the Company and the Purchasers each
desire to amend the Note Purchase Agreement pursuant to the First Amendment to
Note Purchase Agreement dated as of the date hereof ("Amendment No. 1"). It is
---------------
a condition to the effectiveness of Amendment No. 1 that the Guarantor shall
execute and deliver this Guaranty.
NOW, THEREFORE, in consideration of the premises and in order to induce the
Purchasers to execute and deliver Amendment No. 1, the Guarantor hereby agrees
as follows:
Section 1. Guaranty; Limitation of Liability. (a) The Guarantor hereby
---------------------------------
unconditionally and irrevocably guarantees the punctual payment when due,
whether at stated maturity, by acceleration or otherwise, of all Obligations of
the Company now or hereafter existing under the Note Documents, whether for
principal, interest, fees, expenses or otherwise (such Obligations being the
"Guaranteed Obligations"), and agrees to pay any and all expenses (including
- -----------------------
counsel fees and expenses) incurred by any Purchaser in enforcing any rights
under this Guaranty. Without limiting the generality of the foregoing, the
Guarantor's liability shall
<PAGE>
extend to all amounts that constitute part of the Guaranteed Obligations and
would be owed by the Company or any other Obligor to the Purchasers under the
Note Documents but for the fact that they are unenforceable or not allowable
due to the existence of a bankruptcy, reorganization or similar proceeding
involving the Company.
(b) The Guarantor hereby confirms that it is its intention that this
Guaranty and the Obligations of the Guarantor hereunder not constitute a
fraudulent transfer or conveyance for purposes of the United States Federal
Bankruptcy Code, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent
Transfer Act or any similar federal or state requirements of law covering the
protection of creditors' rights or the relief of debtors to the extent
applicable to this Guaranty and the Obligations of the Guarantor hereunder. To
effectuate the foregoing intention, the Guarantor hereby irrevocably agrees that
the Guaranteed Obligations and all of the other liabilities of the Guarantor
under this Guaranty shall be limited to the maximum amount as will, after giving
effect to such maximum amount and all of the other contingent and fixed
liabilities of such Guarantor that are relevant under such requirements of law,
and after giving effect to any collections from, any rights to receive
contributions from, or any payments made by or on behalf of, any of the other
Guarantors in respect of any of the Obligations of such Guarantor under its
Guaranty, result in the Guaranteed Obligations and all of the other liabilities
of the Guarantor under this Guaranty not constituting a fraudulent transfer or
conveyance.
(c) The Guarantor hereby unconditionally and irrevocably agrees that, in
the event any payment shall be required to be made under this Guaranty or any
other guaranty, such Guarantor will contribute, to the fullest extent permitted
by applicable law, such amounts to each of the Purchasers, each of the other
Guarantors and each other guarantor as would maximize the aggregate amount paid
in respect of its Obligations.
Section 2. Guaranty Absolute. The Guarantor guarantees that the
-----------------
Guaranteed Obligations will be paid strictly in accordance with the terms of the
Note Documents, regardless of any law, regulation or order now or hereafter in
effect in any jurisdiction affecting any of such terms or the rights of any
Purchaser with respect thereto. The Obligations of the Guarantor under this
Guaranty are independent of the Guaranteed Obligations or any other Obligations
of the Company or any other Obligor under the Note Documents, and a separate
action or actions may be brought and prosecuted against the Guarantor to enforce
this Guaranty, irrespective of whether any action is brought against the Company
or any other Obligor or whether the Company or any other Obligor is joined in
any such action or actions. The liability of the Guarantor under this Guaranty
shall be irrevocable, absolute and unconditional irrespective of, and the
Guarantor hereby irrevocably waives any defenses it may now or hereafter have in
any way relating to, any or all of the following:
(a) any lack of validity or enforceability of the Note Documents or any
agreement or instrument relating thereto;
2
<PAGE>
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Guaranteed Obligations or any other
Obligations of any other Obligor under the Note Documents, or any other
amendment or waiver of or any consent to departure from the Note
Documents, including, without limitation, any increase in the Guaranteed
Obligations resulting from the issue of Rollover Notes or the extension
of additional credit to any Obligor or any of its Subsidiaries otherwise;
(c) any taking, release or amendment or waiver of or consent to
departure from any other guaranty, for all or any of the Guaranteed
Obligations;
(d) any change, restructuring or termination of the corporate
structure or existence of the Company or any of its Subsidiaries; or
(e) any failure of any Purchaser to disclose to the Company or the
Guarantor any information relating to the financial condition, operations,
properties or prospects of any other Obligor now or in the future known to
any Purchaser (the Guarantor waiving any duty on the part of the Purchasers
to disclose such information); or
(f) any other circumstance (including, without limitation, any statute
of limitations) or any existence of or reliance on any representation by
any Purchaser that might otherwise constitute a defense available to, or
a discharge of, the Company, the Guarantor or any other guarantor or
surety.
This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Guaranteed Obligations is rescinded
or must otherwise be returned by any Purchaser or any other Person upon the
insolvency, bankruptcy or reorganization of the Company or otherwise, all as
though such payment had not been made.
Section 3. Waivers and Acknowledgments. (a) The Guarantor hereby waives
---------------------------
promptness, diligence, notice of acceptance and any other notice with respect to
any of the Guaranteed Obligations and this Guaranty and any requirement that any
Purchaser protect, secure, perfect or insure any Lien or any property subject
thereto or exhaust any right or take any action against the Company or any other
Person.
(b) The Guarantor hereby waives any right to revoke this Guaranty, and
acknowledges that this Guaranty is continuing in nature and applies to all
Guaranteed Obligations, whether existing now or in the future.
(c) The Guarantor acknowledges that it will receive substantial direct and
indirect benefits from the Reorganization and the financing arrangements
provided to the Company under the Note Purchase Agreement and that the waivers
set forth in this Section 3 are knowingly made in contemplation of such
benefits.
3
<PAGE>
Section 4. Subrogation. The Guarantor will not exercise any rights that
-----------
it may now or hereafter acquire against the Company or any other insider
guarantor that arise from the existence, payment, performance or enforcement of
the Guarantor's Obligations under this Guaranty or any other Note Document,
including, without limitation, any right of subrogation, reimbursement,
exoneration, contribution or indemnification and any right to participate in any
claim or remedy of any Purchaser against the Company or any other insider
guarantor, whether or not such claim, remedy or right arises in equity or under
contract, statute or common law, including, without limitation, the right to
take or receive from the Company or any other insider guarantor, directly or
indirectly, in cash or other property or by set-off or in any other manner,
payment or security on account of such claim, remedy or right, unless and until
all of the Obligations and all other amounts payable under this Guaranty shall
have been paid in full in cash and the Commitments of the Purchasers shall have
been expired or been terminated. If any amount shall be paid to the Guarantor
in violation of the preceding sentence at any time prior to the later of (a) the
payment in full in cash of the Guaranteed Obligations and all other amounts
payable under this Guaranty and (b) the maturity date of the Notes or the
Rollover Notes, as the case may be, such amount shall be held in trust for the
benefit of the Purchasers and shall forthwith be paid to the Purchasers to be
credited and applied to the Guaranteed Obligations and all other amounts payable
under this Guaranty, whether matured or unmatured, in accordance with the terms
of the Note Purchase Agreement, or to be held as collateral for any Guaranteed
Obligations or other amounts payable under this Guaranty thereafter arising. If
(i) the Guarantor shall make payment to MS or any Other Purchaser of all or any
part of the Guaranteed Obligations, (ii) all of the Guaranteed Obligations and
all other amounts payable under this Guaranty shall be paid in full in cash and
(iii) the maturity date of the Notes (or Rollover Notes) shall have occurred, MS
and the Other Purchasers will, at the Guarantor's request and expense, execute
and deliver to the Guarantor appropriate documents, without recourse and without
representation or warranty, necessary to evidence the transfer by subrogation to
the Guarantor of an interest in the Guaranteed Obligations resulting from such
payment by the Guarantor.
Section 5. Payments Free and Clear of Taxes, Etc. (a) Any and all
--------------------------------------
payments made by the Guarantor hereunder shall be made free and clear of, and
without deduction for, any and all present or future taxes, income taxes and
branch profits taxes that are imposed by the United States of America and net
income taxes and franchise taxes (whether based on income or capital) that are
imposed on such holder of the Notes (or Rollover Notes) by the state or foreign
jurisdiction under the laws of which such holder of the Notes (or Rollover
Notes) is organized or any political subdivision thereof (all such nonexcluded
taxes, levies, imposts, deductions, charges, withholdings and liabilities in
respect of payments hereunder, under the Notes (or Rollover Notes) or the Note
Documents being hereinafter referred to as "Taxes"). If the Guarantor shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder to any holder of Notes (or Rollover Notes), (i) the sum payable shall
be increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section)
such holder of Notes (or Rollover Notes) receives an amount equal to the sum it
would have received had no such deductions been made, (ii) the
4
<PAGE>
Guarantor shall make such deductions and (iii) the Guarantor shall pay the
full amount deducted to the relevant taxation authority or other authority in
accordance with applicable law.
(b) In addition, the Guarantor agrees to pay any present or future
transfer, stamp, documentary, excise, property or other similar taxes,
assessments, charges or levies that arise from any payment made hereunder or
under the Notes (or Rollover Notes) or the other Note Documents or from the
execution, delivery or registration of, performance under, or otherwise with
respect to, this Agreement, any Note (or Rollover Note) or any of the other Note
Documents, and all reasonable costs, expenses, taxes, assessments and other
charges incurred in connection with any filing or perfection of any lien, pledge
or security interest contemplated under any of the Collateral Documents or any
of the other documents referred to herein or therein (hereinafter referred to as
"Other Taxes").
(c) The Guarantor will indemnify each holder of Notes (or Rollover Notes)
for the full amount of Taxes or Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this
Section) paid by such Purchaser and any liability (including penalties,
additions to tax, interest and expenses) arising therefrom or with respect
thereto. This indemnification shall be made within 30 days from the date such
Purchaser makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes by or on behalf
of the Guarantor, the Guarantor will furnish to each holder of Notes (or
Rollover Notes), at its address referred to in the Note Purchase Agreement, the
original receipt of payment thereof or a certified copy of such receipt. In the
case of any payment hereunder by or on behalf of the Guarantor through an
account or branch outside the United States or on behalf of the Guarantor by a
payor that is not a United States person, if the Guarantor determines that no
Taxes are payable in respect thereof, the Guarantor shall furnish, or shall
cause such payor to furnish, to such holder, at such address, an opinion of
counsel acceptable to MS stating that such payment is exempt from Taxes. For
purposes of this subsection (d) and subsection (e), the terms "United States"
-------------
and "United States person" shall have the meanings specified in Section 7701 of
--------------------
the Internal Revenue Code.
(e) Upon the reasonable request in writing of the Guarantor, each holder of
the Notes (or Rollover Notes) organized under the laws of a jurisdiction outside
the United States shall, on or prior to the date of its execution and delivery
of this Agreement, in the case of each original purchaser of the Notes (or
Rollover Notes), and on the date on which it becomes a holder of the Notes (or
Rollover Notes), in the case of each subsequent holder of the Notes (or Rollover
Notes), (but only so long thereafter as such holder of the Notes (or Rollover
Notes) remains lawfully able to do so), provide the Guarantor with two original
Internal Revenue Service forms 1001 or 4224 or, (in the case of a holder of the
Notes (or Rollover Notes) that has certified in writing to the Guarantor that it
is not a "bank" (as defined in Section 881(c)(3)(A) of the Internal Revenue
Code), form W-8 (and, if such holder of the Notes (or Rollover Notes) delivers a
form W-8, a certificate representing that such holder of the Notes (or Rollover
Notes) is not a
5
<PAGE>
"bank" for purposes of Section 881(c) of the Internal Revenue Code, is not a 10-
percent shareholder (within the meaning of Section 871(h)(3)(B) of the Internal
Revenue Code) of the Company and is not a controlled foreign corporation related
to the Company (within the meaning of Section 864(d)(4) of the Internal Revenue
Code)), as appropriate, or any successor or other form prescribed by the
Internal Revenue Service, certifying that such holder of the Notes (or Rollover
Notes) is exempt from or entitled to a reduced rate of United States withholding
tax on payments pursuant to this Agreement, the Notes (or Rollover Notes) held
thereby or the other Note Documents or, in the case of a holder of the Notes (or
Rollover Notes) that has provided a form W-8, certifying that such holder of the
Notes (or Rollover Notes) is a foreign corporation, partnership, estate or
trust. If the form provided by a holder of the Notes (or Rollover Notes)
pursuant to this subsection (e) at the time such holder of the Notes (or
Rollover Notes) first becomes a party to this Agreement indicates a United
States interest withholding tax rate in excess of zero, withholding tax at such
rate shall be considered excluded from Taxes unless and until such holder of the
Notes (or Rollover Notes) provides the appropriate form certifying that a lesser
rate applies, whereupon withholding tax at such lesser rate only shall be
considered excluded from Taxes for periods governed by such form. If any form or
document referred to in this subsection (e) requires the disclosure of
information, other than information necessary to compute the tax payable and
information required on the date hereof by Internal Revenue Service form 1001,
4224 or W-8 (or the related certificate described above) that the holder of the
Notes (or Rollover Notes) reasonably considers to be confidential, the holder of
the Notes (or Rollover Notes) shall give notice thereof to the Guarantor and
shall not be obligated to include in such form or document such confidential
information.
(f) For any period with respect to which a holder of the Notes (or Rollover
Notes) has failed to provide the Guarantor with the appropriate form or document
described in subsection (e) of this Section 5 (other than if such failure is due
to a change in law occurring after the date on which a form originally was
required to be provided or if such form otherwise is not required under such
subsection (e)), such holder of the Notes (or Rollover Notes) shall not be
entitled to additional amounts or indemnification under subsection (a) or (c) of
this Section 5 with respect to Taxes imposed by the United States by reason of
such failure; provided, however, that should a holder of the Notes (or Rollover
Notes) become subject to Taxes because of its failure to deliver a form required
hereunder, the Company shall take such steps as such holder of the Notes (or
Rollover Notes) shall reasonably request to assist such holder of the Notes (or
Rollover Notes) to recover such Taxes.
(g) Any holder of the Notes (or Rollover Notes) claiming any additional
amounts payable pursuant to this Section 5 shall use reasonable efforts
(consistent with its internal policy and legal and regulatory restrictions) to
file any certificate or document reasonably requested by the Company or to
change the jurisdiction of its applicable lending office if the making of such a
filing or such change would avoid the need for or reduce the amount of any such
additional amounts that may thereafter accrue and would not, in the sole
determination of such holder, be otherwise disadvantageous to such holder.
6
<PAGE>
(h) Without prejudice to the survival of any other agreement of the
Guarantor hereunder or under any other Note Document, the agreements and
obligations of the Guarantor contained in this Section 5 shall survive the
payment in full of the Guaranteed Obligations and all other amounts payable
under this Guaranty.
Section 6. Representations, Warranties and Covenants. The Guarantor
-----------------------------------------
represents and warrants that the representations and warranties contained in
Section 5 of the Note Purchase Agreement with respect to the Guarantor are true
and accurate. The Guarantor further represents, warrants and covenants as
follows:
6.1. Organization; Power and Authority.
---------------------------------
The Guarantor and each of its Subsidiaries are Persons duly organized,
validly existing and in good standing under the laws of their respective
jurisdictions of organization and are duly qualified as foreign corporations or
other entities and are in good standing in each other jurisdiction in which the
ownership, lease or operation of their property and assets or the conduct of
their businesses requires such qualification, other than in any such
jurisdiction in which the failure to be so qualified or in good standing, either
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect. The Guarantor and each of its Subsidiaries have all
corporate and other necessary power and authority, and the legal right, to own
or to hold under lease all of the property and assets they purport to own or
hold under lease and to conduct the business they conduct and propose to
conduct. The Guarantor has all corporate and other necessary power and
authority, and the legal right, to execute and deliver this Guaranty and the
other Note Documents to which it is or is to be a party, to perform its
Obligations hereunder and thereunder and to consummate all of the transactions
contemplated hereby and thereby.
6.2. Authorization, Enforceability, Etc.
-----------------------------------
This Guaranty has been duly authorized, executed and delivered by the
Guarantor and constitutes the legal, valid and binding obligations of the
Guarantor, enforceable against the Guarantor in accordance with its terms,
except as such enforceability may be limited by the effect of applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally.
6.3. Compliance with Laws, Other Instruments, Etc.
---------------------------------------------
The execution, delivery and performance by the Guarantor of this Guaranty
and the consummation of the other transactions contemplated hereby and the
consummation of the Reorganization do not (a) contravene the Guarantor's
certificate of incorporation or bylaws, (b) violate any Requirement of Law, (c)
conflict with or result in the breach of, or constitute a default under, any
loan or purchase agreement, indenture, mortgage, deed of trust, lease,
instrument, contract or other agreement binding on or affecting the Guarantor or
any of its
7
<PAGE>
Subsidiaries or any of their respective property or assets or (d) result in or
require the creation or imposition of any Lien upon or with respect to any of
the property or assets of any of the Guarantor or any of its Subsidiaries.
Neither the Guarantor nor any of its Subsidiaries is in violation of any of
the terms of its certificate of incorporation or bylaws (or similar
organizational documents) or any Requirement of Law or in breach of any loan
or purchase agreement, indenture, mortgage, deed of trust, lease, instrument,
contract or other agreement referred to in the immediately preceding sentence,
the violation or breach of which, either individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect.
6.4. Governmental Authorizations, Etc.
---------------------------------
No Governmental Authorization, and no consent, approval or authorization
of, or notice to, or other action by, any Person, is required for the due
execution, delivery or performance by the Guarantor of this Guaranty and the
consummation of the other transactions contemplated hereby and the consummation
of the Reorganization, except for such Governmental Authorizations, and such
consents, approvals, authorizations, notices and other actions, as are described
on Schedule 6.4 attached hereto, all of which have been obtained or made on or
prior to the date of the Reorganization and are in full force and effect.
6.5. Existing Indebtedness.
---------------------
The Guarantor has no outstanding Indebtedness other than this Guaranty.
6.6. No Significant Subsidiaries.
---------------------------
The Guarantor has no direct Subsidiaries other than the Company. The
Guarantor has no significant assets other than the capital stock of the Company.
6.7. No Conditions Precedent; No Reliance.
------------------------------------
There are no conditions precedent to the effectiveness of this Guaranty
that have not been satisfied or waived. The Guarantor has, independently and
without reliance upon any Purchaser and based on such documents and information
as it has deemed appropriate, made its own credit analysis and decision to enter
into this Guaranty.
6.8. Mandatory Redemption of the Notes (or Rollover Notes) by the Company.
--------------------------------------------------------------------
Upon receipt by the Guarantor of the Net Cash Proceeds from (a) the
issuance or incurrence by the Guarantor of any Indebtedness (including, without
limitation, the Refinancing Securities), (b) the sale or issuance by the
Guarantor or any of its Subsidiaries (other than the Company and its
Subsidiaries) of any shares of its capital stock (or other ownership or profit
interests therein), any securities convertible into or exchangeable for shares
of its capital stock (or other ownership or profit interests therein) or any
warrants, options or other rights for the
8
<PAGE>
purchase or acquisition of any shares of its capital stock (or other ownership
or profit interests therein) and (c) any Asset Sale, the Guarantor shall
contribute such proceeds to the Company to the extent necessary for the
Company to satisfy its obligation to redeem the outstanding Notes (or Rollover
Notes) pursuant to Section 7.3 of the Note Purchase Agreement.
6.9. Furnishing of Rule 144A Information.
-----------------------------------
The Guarantor agrees that, for so long as it is not subject to Section 13
or 15(d) of the Exchange Act, it will furnish to any holder of the Notes or
Rollover Notes or to any prospective purchaser of any Notes or Rollover Notes
designated by such holder that is a "qualified institutional buyer" (as defined
in Rule 144A under the Securities Act), upon the request of such holder, on or
prior to the date such Notes or Rollover Notes are to be sold to such
prospective purchaser, the following information (which shall be reasonably
current in relation to the date of such sale): (a) copies of such reports and
other information the Guarantor would have been required to file with the
Securities and Exchange Commission had it been subject to Section 13 or 15(d) of
the Exchange Act; (b) quarterly and annual reports substantially equivalent to
those which would be required under the Exchange Act and (c) the information
required under Rule 144A under the Securities Act.
Section 7. Amendments, Etc. No amendment or waiver of any provision of
----------------
this Guaranty and no consent to any departure by the Guarantor therefrom shall
in any event be effective unless the same shall be in writing and signed by the
Purchasers, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given; provided,
--------
however, that no amendment, waiver or consent shall, unless in writing and
- -------
signed by all of the Purchasers, (a) limit the liability of the Guarantor
hereunder, (b) postpone any date fixed for payment hereunder or (c) change the
number of Purchasers required to take any action hereunder.
Section 8. Notices, Etc. All notices and other communications provided
-------------
for hereunder shall be in writing (including telegraphic, telecopy or telex
communication) and mailed, telegraphed, telecopied, telexed or delivered to it,
if to the Guarantor, addressed to it at 222 Sutter Street, San Francisco, CA
94108, Fax No. (415) 403-4004, Attention: Timothy M. Monahan, if to MS or any
Other Purchaser, at its address specified in the Note Purchase Agreement, or as
to any party at such other address as shall be designated by such party in a
written notice to each other party. All such notices and other communications
shall, when mailed, telegraphed, telecopied or telexed, be effective when
deposited in the mails, delivered to the telegraph company, transmitted by
telecopier or confirmed by telex answerback, respectively.
Section 9. No Waiver; Remedies. No failure on the part of any Purchaser
-------------------
to exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
9
<PAGE>
Section 10. Indemnification. Without limitation on any other Obligations
---------------
of the Guarantor or remedies of the Purchasers under this Guaranty, the
Guarantor shall, to the fullest extent permitted by law, indemnify, defend and
save and hold harmless each Purchaser from and against, and shall pay on demand,
any and all losses, liabilities, damages, costs, expenses and charges (including
the fees and disbursements of such Purchaser's legal counsel) suffered or
incurred by such Purchaser as a result of any failure of any Guaranteed
Obligations to be the legal, valid and binding obligations of the Company
enforceable against the Company in accordance with their terms.
Section 11. Continuing Guaranty; Assignments under the Note Purchase
--------------------------------------------------------
Agreement. This Guaranty is a continuing guaranty and shall (a) remain in full
- ---------
force and effect until the later of the payment in full in cash of the
Guaranteed Obligations and all other amounts payable under this Guaranty, (b) be
binding upon the Guarantor, its successors and assigns and (c) inure to the
benefit of and be enforceable by the Purchasers and their successors,
transferees and assigns. Without limiting the generality of the foregoing
clause (c), any Purchaser may assign or otherwise transfer all or any portion of
its rights and obligations under the Note Purchase Agreement (including, without
limitation, all or any portion of the Note or Notes held by it) to any other
Person, and such other Person shall thereupon become vested with all the
benefits in respect thereof granted to such Purchaser herein or otherwise.
Section 12. Governing Law; Jurisdiction; Waiver of Jury Trial, Etc. (a)
-------------------------------------------------------
This Guaranty shall be governed by, and construed in accordance with, the laws
of the State of New York.
(b) The Guarantor hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of any New York State
court or federal court of the United States of America sitting in New York City,
and any appellate court from any thereof, in any action or proceeding arising
out of or relating to this Guaranty or the Note Purchase Agreement to which it
is or is to be a party, or for recognition or enforcement of any judgment, and
the Guarantor hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in any such
New York State court or, to the extent permitted by law, in such federal court.
The Guarantor agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Guaranty shall
affect any right that any party may otherwise have to bring any action or
proceeding relating to this Guaranty or the Note Purchase Agreement to which it
is or is to be a party in the courts of any jurisdiction.
(c) The Guarantor irrevocably and unconditionally waives, to the fullest
extent it may legally and effectively do so, any objection that it may now or
hereafter have to the laying of venue of any suit, action or proceeding arising
out of or relating to this Guaranty or the Note Purchase Agreement to which it
is or is to be a party in any New York State or federal
10
<PAGE>
court. The Guarantor hereby irrevocably waives, to the fullest extent
permitted by law, the defense of an inconvenient forum to the maintenance of
such action or proceeding in any such court.
(d) The Guarantor hereby irrevocably waives all right to trial by jury in
any action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to the Note Purchase Agreement, the
transactions contemplated thereby or the actions of MS or any Other Purchaser in
the negotiation, administration, performance or enforcement thereof.
[Signature Page Follows]
11
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
NORTHPOINT COMMUNICATIONS HOLDINGS, INC.
By_______________________________________
Name:
Title:
<PAGE>
Exhibit 10.16
MORGAN STANLEY & CO. INCORPORATED
1585 Broadway
New York, NY 10036
March 22, 1999
NorthPoint Communications Holdings, Inc.
222 Sutter Street
San Francisco, CA 94108
Ladies and Gentlemen:
Reference is made to the Note Purchase Agreement dated July 10, 1998 (the
"Note Purchase Agreement") between NorthPoint Communications, Inc.
("NorthPoint") and Morgan Stanley Senior Funding, Inc. ("MS"), pursuant to which
MS purchased $15 million of NorthPoint's Series A Senior Increasing Rate Notes
(the "Series A Notes") and $35 million of NorthPoint's Series B Senior
Increasing Rate Notes (the "Series B Notes"). It is a condition to the
execution of Amendment No. 1 to the Note Purchase Agreement that you execute and
deliver this Agreement. Capitalized terms used herein and not defined herein
are used as defined in the Note Purchase Agreement.
You hereby agree to offer Morgan Stanley & Co. Incorporated the opportunity
to be the exclusive placement agent or underwriter for any private placement or
public offering and sale by you or your subsidiaries of high yield debt
securities, including redeemable preferred stock, in an amount of at least $100
million in gross proceeds (a "Refinancing") and to indemnify Morgan Stanley &
Co. Incorporated on usual and customary terms in connection therewith. It is
understood that your obligation to offer such opportunity to Morgan Stanley &
Co. Incorporated shall extend to no more than one Refinancing and shall expire
two years after the later of (i) the date on which all Notes issued pursuant to
the Note Purchase Agreement have been redeemed in full and (ii) December 31,
1999.
This agreement shall be governed by and construed in accordance with the
laws of the State of New York. Any right to trial by jury with respect to any
claim, action, suit or proceeding arising out of or contemplated by this letter
is hereby waived and the parties hereto hereby submit to the non-exclusive
jurisdiction of the federal and New York State courts located in the City of New
York in connection with any dispute related to this letter and/or any matters
contemplated hereby. This agreement is not assignable by you to any other
person. This agreement may not be disclosed to any other person except your
accountants and attorneys and
<PAGE>
then only on a confidential basis. This agreement may be executed in two or
more counterparts that together shall constitute one and the same instrument.
<PAGE>
Upon your acceptance hereof, this letter will constitute a binding
agreement between us.
MORGAN STANLEY & CO. INCORPORATED
By:_____________________________________
Name:
Title:
Agreed to and Accepted:
NORTHPOINT COMMUNICATIONS HOLDINGS, INC.
By:____________________________
Name:
Title:
<PAGE>
EXHIBIT 10.20
NORTHPOINT COMMUNICATIONS HOLDINGS, INC.
1999 STOCK PLAN
1. Purposes of the Plan. The purposes of the 1999 Stock Plan are to
--------------------
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant. Stock
Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Committee responsible for conducting
-------------
the general administration of the Plan in accordance with Section 4 hereof.
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are
granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a committee of Independent Directors appointed
---------
by the Board in accordance with Section 4 hereof.
(f) "Common Stock" means the Common Stock of the Company, par value
------------
$.001 per share.
(g) "Company" means NorthPoint Communications Holdings, Inc., a
-------
Delaware corporation.
(h) "Consultant" means any consultant or adviser if: (i) the
----------
consultant or adviser renders bona fide services to the Company; (ii) the
services rendered by the consultant or adviser are not in connection with the
offer or sale of securities in a capital-raising transaction and do not directly
or indirectly promote or maintain a market for the Company's securities; and
(iii) the consultant or adviser is a natural person who has contracted directly
with the Company to render such services.
(i) "Director" means a member of the Board of Directors of the
--------
Company.
(j) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider
<PAGE>
shall not cease to be an Employee in the case of (i) any leave of absence
approved by the Company or (ii) transfers between locations of the Company or
between the Company, its Parent, any Subsidiary, or any successor. For purposes
of Incentive Stock Options, no such leave may exceed ninety (90) days, unless
reemployment upon expiration of such leave is guaranteed by statute or contract.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient, by itself, to constitute "employment" by the Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(l) "Fair Market Value" means, as of any date, the 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 Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, 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 exchange or system 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 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
on the last market trading day prior to the day of determination; 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.
(m) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code and
which is designated as an Incentive Stock Option by the Administrator.
(n) "Independent Director"
--------------------
means a Director who is not an Employee of the Company.
(o) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option which is not designated as an Incentive
Stock Option by the Administrator.
(p) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(q) "Option" means a stock option granted pursuant to the Plan.
------
2
<PAGE>
(r) "Option Agreement" means a written agreement between the Company
----------------
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the Plan.
(s) "Optioned Stock" means the Common Stock subject to an Option or a
--------------
Stock Purchase Right.
(t) "Optionee" means the holder of an outstanding Option or Stock
--------
Purchase Right granted under the Plan.
(u) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(v) "Plan" means the NorthPoint Communications Holdings, Inc. 1999
----
Stock Plan.
(w) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a Stock Purchase Right granted under Section 12 below.
(x) "Rule 16b-3"
----------
means that certain Rule 16b-3 under the Exchange Act, as such Rule may
be amended from time to time.
(y) "Section 16(b)" means Section 16(b) of the Securities Exchange
-------------
Act of 1934, as amended.
(z) "Service Provider" means an Employee, Director or Consultant.
----------------
(aa) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 15 below.
(bb) "Stock Purchase Right" means a right to purchase Common Stock
--------------------
pursuant to Section 12 below.
(cc) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 15 of
-------------------------
the Plan, the shares of stock subject to Options or Stock Purchase Rights shall
be Common Stock, initially shares of the Company's Common Stock, par value $.001
per share. Subject to the provisions of Section 15 of the Plan, the maximum
aggregate number of Shares which may be issued upon exercise of such Options or
Stock Purchase Rights is the sum of: (i) 5,000,000 Shares; (ii) the number of
shares of common stock of NorthPoint Communications, Inc., which remain
available for grants of options under the NorthPoint Communications, Inc. 1997
Stock Option Plan as of the date of the Plan's initial adoption by the Board and
(iii) with respect to options granted under the NorthPoint Communications, Inc.
1997 Stock Option Plan that are assumed by the Company and expire or are
canceled without having been exercised in full, the number of Shares subject to
each such option as to which such option was not exercised prior to its
expiration or cancellation;
3
<PAGE>
provided, however, that, during the term of the Plan, on each anniversary of the
date of the Plan's initial adoption by the Board (commencing with the first such
anniversary), such maximum aggregate number of Shares shall be increased by
1,500,000 Shares.
Notwithstanding the foregoing, the maximum aggregate number of Shares
which may be issued upon exercise of Incentive Stock Options (the "ISO
Limitation") is 5,000,000 Shares; provided, however, that, during the term of
the Plan, on each anniversary of the date of the Plan's initial adoption by the
Board (commencing with the first such anniversary), the ISO Limitation shall be
increased by 1,500,000 Shares.
Shares issued upon exercise of Options or Stock Purchase Rights may be
authorized but unissued, or reacquired Common Stock. If an Option or Stock
Purchase Right expires or becomes unexercisable without having been exercised in
full, the unpurchased Shares which were subject thereto shall become available
for future grant or sale under the Plan (unless the Plan has terminated).
Shares which are delivered by the Optionee or withheld by the Company upon the
exercise of an Option or Stock Purchase Right under the Plan, in payment of the
exercise price thereof or tax withholding thereon, may again be optioned,
granted or awarded hereunder, subject to the limitations of this Section 3. If
Shares of Restricted Stock are repurchased by the Company at their original
purchase price, such Shares shall become available for future grant under the
Plan. Notwithstanding the provisions of this Section 3, no Shares may again be
optioned, granted or awarded if such action would cause an Incentive Stock
Option to fail to qualify as an Incentive Stock Option under Code Section 422.
4. Administration of the Plan.
--------------------------
(a) Administrator. The Plan shall be administered by the
-------------
Compensation Committee of the Board (or another committee or a subcommittee of
the Board designated as the Administrator under the Plan) which shall consist
solely of two or more Independent Directors appointed by and holding office at
the pleasure of the Board, each of whom is both a "non-employee director" as
defined by Rule 16b-3 and an "outside director" for purposes of Section 162(m)
of the Code. Appointment of Committee members shall be effective upon
acceptance of appointment. Committee members may resign at any time by
delivering written notice to the Board. Vacancies in the Committee may be
filled by the Board.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and the specific duties delegated by the Board to such Committee, and
subject to the approval of any relevant authorities, the Administrator shall
have the authority in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may from time to time be granted hereunder;
(iii) to determine the number of Shares to be covered by each
such award granted hereunder;
4
<PAGE>
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions of any Option or Stock
Purchase Right granted hereunder (such terms and conditions include, but are not
limited to, the exercise price, the time or times when Options or Stock Purchase
Rights may be exercised (which may be based on performance criteria), any
vesting acceleration or waiver of forfeiture restrictions, and any restriction
or limitation regarding any Option or Stock Purchase Right or the Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine);
(vi) to determine whether and under what circumstances an Option
may be settled in cash under subsection 10(g) instead of Common Stock;
(vii) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(viii) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be withheld. 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. All elections by Optionees to
have Shares withheld for this purpose shall be made in such form and under such
conditions as the Administrator may deem necessary or advisable; and
(ix) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.
(c) Effect of Administrator's Decision. All decisions,
----------------------------------
determinations and interpretations of the Administrator shall be final and
binding on all Optionees.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
-----------
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees. If otherwise eligible, an Employee or Consultant who has been
granted an Option or Stock Purchase Right may be granted additional Options or
Stock Purchase Rights. Each Independent Director shall be eligible to be granted
Options at the times and in the manner set forth in Section 12.
6. Limitations.
-----------
(a) Each Option shall be designated by the Administrator in the
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 Shares subject to an Optionee's Incentive Stock
Options and other incentive stock options granted by the Company, any Parent or
Subsidiary, which become exercisable for the first time during any
5
<PAGE>
calendar year (under all plans of the Company or any Parent or Subsidiary)
exceeds $100,000, such excess Options or other options shall be treated as
Nonstatutory Stock Options.
For purposes of this Section 6(a), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the time of grant.
(b) Neither the Plan, any Option nor any Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
employment or consulting relationship with the Company, nor shall they interfere
in any way with the Optionee's right or the Company's right to terminate such
employment or consulting relationship at any time, with or without cause.
(c) No Employee shall be granted, in any calendar year, Options or
Stock Purchase Rights to purchase more than 1,500,000 Shares.
(d) The foregoing limitation shall be adjusted proportionately in
connection with any change in the Company's capitalization as described in
Section 15.
(e) If an Option is canceled in the same fiscal year of the Company
it was granted (other than in connection with a transaction described in Section
15), the canceled Option will be counted against the limit set forth in Section
6(c). For this purpose, if the exercise price of an Option is reduced, the
transaction shall be treated as a cancellation of the Option and the grant of a
new Option.
7. Term of Plan. The Plan shall become effective upon its initial
------------
adoption by the Board. It shall continue in effect for a term of ten (10) years
unless sooner terminated under Section 17 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
--------------
Agreement; provided, however, that the term shall be no more than ten (10) years
from the date of grant thereof. In the case of an Incentive Stock Option
granted to an Optionee who, at the time the Option is granted, owns (or is
treated as owning under Code Section 424) stock representing more than ten
percent (10%) of the 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 or such shorter term as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Except as provided in Section 12, the per share exercise price
for the Shares to be issued upon exercise of an Option shall be such price as is
determined by the Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
6
<PAGE>
(A) granted to an Employee who, at the time of grant of
such Option, owns (or is treated as owning under Code Section 424) stock
representing more than ten percent (10%) of the 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 other 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
(A) granted to a Service Provider who, at the time of
grant of such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the 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 other Service Provider, 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.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price other than as required above pursuant to a merger or
other corporate transaction.
(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). Such consideration may consist of (1) cash,
(2) check, (3) full recourse promissory note bearing interest (at no less than
such rate as shall then preclude the imputation of interest under the Code) and
payable upon such terms as may be prescribed by the Administrator), (4) other
Shares which (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, and (y) have a Fair Market Value on the date of surrender equal to
the aggregate exercise price of the Shares as to which such Option shall be
exercised, (5) surrendered Shares then issuable upon exercise of the Option
having a Fair Market Value on the date of exercise equal to the aggregate
exercise price of the Option or exercised portion thereof, (6) property of any
kind which constitutes good and valuable consideration, (7) delivery of a notice
that the Optionee has placed a market sell order with a broker with respect to
Shares then issuable upon exercise of the Options and that the broker has been
directed to pay a sufficient portion of the net proceeds of the sale to the
Company in satisfaction of the Option exercise price, provided, that payment of
such proceeds is then made to the Company upon settlement of such sale, or (8)
any combination of the foregoing methods of payment. 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.
7
<PAGE>
10. Exercise of Option.
------------------
(a) Vesting; Fractional Exercises. Except as provided in Section 13,
-----------------------------
Options granted hereunder shall be exercisable according to the terms hereof at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement, but in no case at a rate of less than twenty
percent (20%) per year over five (5) years from the date the Option is granted.
Unless the Administrator provides otherwise, vesting of Options granted
hereunder shall be tolled during any unpaid leave of absence. An Option may not
be exercised for a fraction of a Share.
(b) Deliveries upon Exercise. All or a portion of an exercisable
------------------------
Option shall be deemed exercised upon delivery of all of the following to the
Secretary of the Company or his or her office:
(i) A written or electronic notice complying with the applicable
rules established by the Administrator stating that the Option, or a portion
thereof, is exercised. The notice shall be signed by the Optionee or other
person then entitled to exercise the Option or such portion of the Option;
(ii) Such representations and documents as the Administrator, in
its absolute discretion, deems necessary or advisable to effect compliance with
Applicable Laws. The Administrator may, in its absolute discretion, also take
whatever additional actions it deems appropriate to effect such compliance,
including, without limitation, placing legends on share certificates and issuing
stop transfer notices to agents and registrars; and
(iii) In the event that the Option shall be exercised pursuant
to Section 10(f) by any person or persons other than the Optionee, appropriate
proof of the right of such person or persons to exercise the Option.
(c) Conditions to Delivery of Share Certificates. The Company shall
--------------------------------------------
not be required to issue or deliver any certificate or certificates for Shares
purchased upon the exercise of any Option or portion thereof prior to
fulfillment of all of the following conditions:
(i) The admission of such Shares to listing on all stock
exchanges on which such class of stock is then listed;
(ii) The completion of any registration or other qualification
of such Shares under any state or federal law, or under the rulings or
regulations of the Securities and Exchange Commission or any other governmental
regulatory body which the Administrator shall, in its absolute discretion, deem
necessary or advisable;
(iii) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Administrator shall, in its
absolute discretion, determine to be necessary or advisable;
8
<PAGE>
(iv) The lapse of such reasonable period of time following the
exercise of the Option as the Administrator may establish from time to time for
reasons of administrative convenience; and
(v) The receipt by the Company of full payment for such Shares,
including payment of any applicable withholding tax, which in the discretion of
the Administrator may be in the form of consideration used by the Optionee to
pay for such Shares under Section 9(b).
(d) Termination of Relationship as a Service Provider. If an
-------------------------------------------------
Optionee ceases to be a Service Provider, such Optionee may exercise his or her
Option within such period of time as is specified in the Option Agreement to the
extent that the Option is vested on the date of termination (but in no event
later than the expiration of the term of the Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for three (3) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall again become available for issuance under the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
period specified by the Administrator in the Option Agreement relating to such
Option, the Option shall terminate, and the Shares covered by such Option shall
again become available for issuance under the Plan.
(e) Disability of Optionee. If an Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If such disability is not a "disability" as such term is defined
in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such
Incentive Stock Option shall automatically cease to be treated as an Incentive
Stock Option and shall be treated for tax purposes as a Nonstatutory Stock
Option on the day three (3) months and one (1) day following such termination.
If, on the date of termination, the Optionee is not vested as to his or her
entire Option, the Shares covered by the unvested portion of the Option shall
revert to the Plan. If, after termination, the Optionee does not exercise his
or her Option within the time specified herein, the Option shall terminate, and
the Shares covered by such Option shall revert to the Plan.
(f) Death of Optionee. If an Optionee dies while a Service Provider,
-----------------
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or
9
<PAGE>
administrator of the Optionee's estate or, if none, by the person(s) entitled to
exercise the Option under the Optionee's will or the laws of descent or
distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(g) 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.
11. Non-Transferability of Options and Stock Purchase Rights. Options and
--------------------------------------------------------
Stock Purchase Rights 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, during the lifetime of the
Optionee, only by the Optionee.
12. Granting of Options to Independent Directors. During the term of the
--------------------------------------------
Plan, a person who is an Independent Director as of the date of the consummation
of the initial public offering of Common Stock, or a person who is initially
elected to the Board following the consummation of the initial public offering
of Common Stock and who is an Independent Director at the time of such initial
election, automatically shall be granted (i) an Option to purchase thirty
thousand (30,000) shares of Common Stock (subject to adjustment as provided in
Section 15) on the date of such consummation or such initial election, as
applicable (each, an "Initial Option") and (ii) an Option to purchase ten
thousand (10,000) shares of Common Stock (subject to adjustment as provided in
Section 15) on the date of each annual meeting of stockholders after the date of
the Board's adoption of the Plan at which the Independent Director is reelected
to the Board (a "Subsequent Option"). Members of the Board who are employees of
the Company who subsequently retire from the Company and remain on the Board
will not receive an initial Option grant pursuant to clause (i) of the preceding
sentence, but to the extent that they are otherwise eligible, will receive,
after retirement from employment with the Company, Options as described in
clause (ii) of the preceding sentence. All the foregoing Option grants
authorized by this Section 12 are subject to stockholder approval of the Plan.
13. Terms of Options Granted to Independent Directors. The per Share
-------------------------------------------------
price of each Option granted to an Independent Director shall equal 100% of the
Fair Market Value of a share of Common Stock on the date the Option is granted;
provided, however, that the per Share price of each Option granted to an
Independent Director on the date of the initial public offering of Common Stock
shall equal the initial public offering price (net of underwriting discounts and
commissions) per Share. Initial Options (as defined in Section 12) granted to
Independent Directors shall become exercisable in cumulative monthly
installments of 1/36 of the Shares subject to such option on each of the monthly
anniversaries of the date of Initial Option grant, commencing with the first
such monthly anniversary, such that each Initial Option shall be one hundred
percent (100%) vested on the third anniversary of its date of grant. Subsequent
Options (as defined in Section 12) granted to Independent Directors shall become
vested in cumulative monthly installments of 1/12 of the Shares subject to such
Option on each of the monthly anniversaries of the date of Subsequent Option
grant, commencing with the twenty-fifth monthly
10
<PAGE>
anniversary of such date of Subsequent Option grant, such that each Subsequent
Option shall be one hundred percent (100%) vested on the third anniversary of
the date of Subsequent Option grant. Subject to Section 10, the term of each
Option granted to an Independent Director shall be ten (10) years from the date
the Option is granted. No portion of an Option which is unexercisable at the
time of an Independent Director's termination of membership on the Board shall
thereafter become exercisable.
14. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid, and the time within which such person must
accept such offer. The offer shall be accepted by execution of a Restricted
Stock purchase agreement in the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines
-----------------
otherwise, the Restricted Stock purchase agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine, but in no case at a rate of less than twenty
percent (20%) per year over five (5) years from the date of purchase.
(c) Other Provisions. The Restricted Stock purchase agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have rights equivalent to those of a shareholder
and shall be a shareholder when his or her purchase is entered upon the records
of the duly authorized transfer agent of the Company. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the Stock Purchase Right is exercised, except as provided in Section 15 of
the Plan.
15. Adjustments upon Changes in Capitalization, Merger or Asset Sale.
----------------------------------------------------------------
(a) In the event that the Administrator determines that any dividend
or other distribution (whether in the form of cash, Common Stock, other
securities, or other property), recapitalization, reclassification, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, liquidation, dissolution, or sale, transfer, exchange
or other disposition of all or substantially all of the assets of the Company,
or exchange of Common Stock or other securities of the Company, issuance of
warrants or other
11
<PAGE>
rights to purchase Common Stock or other securities of the Company, or other
similar corporate transaction or event, in the Administrator's sole discretion,
affects the Common Stock such that an adjustment is determined by the
Administrator to be appropriate in order to prevent dilution or enlargement of
the benefits or potential benefits intended to be made available under the Plan
or with respect to any Option or Stock Purchase Right, then the Administrator
shall, in such manner as it may deem equitable, adjust any or all of:
(i) the number and kind of shares of Common Stock (or other
securities or property) with respect to which Options or Stock Purchase Rights
may be granted or awarded (including, but not limited to, adjustments of the
limitations in Section 3 on the maximum number and kind of shares which may be
issued and adjustments of the maximum number of Shares that may be purchased by
any Optionee in any fiscal year pursuant to Section 6(c));
(ii) the number and kind of shares of Common Stock (or other
securities or property) subject to outstanding Options or Stock Purchase Rights;
and
(iii) the grant or exercise price with respect to any Option or
Stock Purchase Right.
(b) In the event of any transaction or event described in Section
15(a) or any unusual or nonrecurring transactions or events affecting the
Company, any affiliate of the Company, or the financial statements of the
Company or any affiliate, or of changes in Applicable Laws, regulations, or
accounting principles, the Administrator, in its sole and absolute discretion,
and on such terms and conditions as it deems appropriate, either by the terms of
the Option or Stock Purchase Right or by action taken prior to the occurrence of
such transaction or event and either automatically or upon the Optionee's
request, is hereby authorized to take any one or more of the following actions
whenever the Administrator determines that such action is appropriate in order
to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan or with respect to any Option or
Stock Purchase Right granted under the Plan, to facilitate such transactions or
events or to give effect to such changes in laws, regulations or principles:
(i) To provide for either the purchase of any such Option or
Stock Purchase Right for an amount of cash equal to the amount that could have
been attained upon the exercise of such Option or Stock Purchase Right or
realization of the Optionee's rights had such Option or Stock Purchase Right
been currently exercisable or payable or fully vested or the replacement of such
Option or Stock Purchase Right with other rights or property selected by the
Administrator in its sole discretion;
(ii) To provide that such Option or Stock Purchase Right cannot
vest, be exercised or become payable after such event;
(iii) To provide that such Option or Stock Purchase Right shall
be exercisable as to all shares covered thereby, notwithstanding anything to the
contrary in the Plan or the provisions of such Option or Stock Purchase Right;
12
<PAGE>
(iv) To provide that such Option or Stock Purchase Right be
assumed by the successor or survivor corporation, or a parent or subsidiary
thereof, or shall be substituted for by similar options, rights or awards
covering the stock of the successor or survivor corporation, or a parent or
subsidiary thereof, with appropriate adjustments as to the number and kind of
shares and prices;
(v) To make adjustments in the number and type of shares of
Common Stock (or other securities or property) subject to outstanding Options
and Stock Purchase Rights, and/or in the terms and conditions of (including the
grant or exercise price), and the criteria included in, outstanding Options or
Stock Purchase Rights or Options or Stock Purchase Rights which may be granted
in the future; and
(vi) To provide that, for a specified period of time prior to
such event, the restrictions imposed under an Option Agreement or Restricted
Stock purchase agreement upon some or all Shares may be terminated, and, in the
case of Restricted Stock, some or all shares of such Restricted Stock may cease
to be subject to repurchase.
(c) Subject to Section 3, the Administrator may, in its discretion,
include such further provisions and limitations in any Option, Stock Purchase
Right, agreement or certificate, as it may deem equitable and in the best
interests of the Company.
(d) Notwithstanding the foregoing, in the event that the Company
becomes a party to a transaction that is intended to qualify for "pooling of
interests" accounting treatment and, but for one or more of the provisions of
this Plan or any Option Agreement or any Restricted Stock purchase agreement
would so qualify, then this Plan and any such agreement shall be interpreted so
as to preserve such accounting treatment, and to the extent that any provision
of the Plan or any such agreement would disqualify the transaction from pooling
of interests accounting treatment (including, if applicable, an entire Option
Agreement or Restricted Stock purchase agreement), then such provision shall be
null and void. All determinations to be made in connection with the preceding
sentence shall be made by the independent accounting firm whose opinion with
respect to "pooling of interests" treatment is required as a condition to the
Company's consummation of such transaction.
(e) The existence of the Plan, any Option Agreement or Restricted
Stock purchase agreement and the Options or Stock Purchase Rights granted
hereunder shall not affect or restrict in any way the right or power of the
Company or the stockholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's capital
structure or its business, any merger or consolidation of the Company, any issue
of stock or of options, warrants or rights to purchase stock or of bonds,
debentures, preferred or prior preference stocks whose rights are superior to or
affect the Common Stock or the rights thereof or which are convertible into or
exchangeable for Common Stock, or the dissolution or liquidation of the company,
or any sale or transfer of all or any part of its assets or business, or any
other corporate act or proceeding, whether of a similar character or otherwise.
16. Time of Granting Options and Stock Purchase Rights. The date of grant
--------------------------------------------------
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator
13
<PAGE>
makes the determination granting such Option or Stock Purchase Right, or such
other date as is determined by the Administrator. Notice of the determination
shall be given to each Employee or Consultant to whom an Option or Stock
Purchase Right is so granted within a reasonable time after the date of such
grant.
17. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time wholly or
-------------------------
partially amend, alter, suspend or terminate the Plan. However, without
approval of the Company's stockholders given within twelve (12) months before or
after the action by the Board, no action of the Board may, except as provided in
Section 15, increase the limits imposed in Section 3 on the maximum number of
Shares which may be issued under the Plan or extend the term of the Plan under
Section 7.
(b) Stockholder Approval. The Board shall obtain stockholder
--------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
18. Inability to Obtain Authority. 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.
19. Reservation of Shares. The Company, during the term of this Plan,
---------------------
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
20. Stockholder Approval. The Plan shall be submitted for the approval of
--------------------
the stockholders of the Company within twelve (12) months after the date of the
Board's initial adoption of this Plan. Options and Stock Purchase Rights may be
granted prior to such stockholder approval, provided that such Options and Stock
Purchase Rights shall not be exercisable prior to the time when this Plan is
approved by the stockholders, and provided further that if such approval has not
been obtained at the end of said twelve-month period, all Options and Stock
Purchase Rights previously granted under this Plan shall thereupon be canceled
and become null and void.
21. Information to Optionees and Purchasers. The Company shall provide to
---------------------------------------
each Optionee and to each individual who acquires Shares pursuant to the Plan,
not less frequently than annually during the period such Optionee or purchaser
has one or more Options or Stock
14
<PAGE>
Purchase Rights outstanding, and, in the case of an individual who acquires
Shares pursuant to the Plan, during the period such individual owns such Shares,
copies of annual financial statements. The Company shall not be required to
provide such statements to key employees whose duties in connection with the
Company assure their access to equivalent information.
15
<PAGE>
22. Governing Law. The validity and enforceability of this Plan shall be
-------------
governed by and construed in accordance with the laws of the State of California
without regard to otherwise governing principles of conflicts of law.
* * * * * * *
I hereby certify that the foregoing Plan was adopted by the Board of
Directors of NorthPoint Communications Holdings, Inc. on , 199 .
------------- ---
Executed as of this day of , 199 .
---- ---------- ---
------------------------------------
* * * * * * *
I hereby certify that the foregoing Plan was approved by the
stockholders of NorthPoint Communications Holdings, Inc. on , 199 .
---------- ---
Executed at , on this day of , 199 .
-------- --------- -- ------- --
------------------------------------
16
<PAGE>
EXHIBIT 10.21
INDEMNIFICATION AGREEMENT
-------------------------
This Indemnification Agreement (the "Agreement") is made as of [Date] by
---------
and between NorthPoint Communications Holdings, 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 Holdings, Inc.
By:
--------------------------------------
Title:
-----------------------------------
Address: 222 Sutter Street, 7th Floor
San Francisco, CA 94108
AGREED TO AND ACCEPTED:
[Indemnitee]
- ------------------------------
(Signature)
Address:
- ------------------------------
- ------------------------------
<PAGE>
Exhibit 10.22
AGREEMENT AND PLAN OF MERGER
OF
NORTHPOINT MERGER SUB, INC.,
a Delaware corporation,
AND
NORTHPOINT COMMUNICATIONS, INC.,
a Delaware corporation
AGREEMENT AND PLAN OF MERGER (the "Agreement") dated as of March 22,
1999, among NorthPoint Merger Sub, Inc., a Delaware corporation ("Merger Sub"),
NorthPoint Communications Holdings, Inc., a Delaware corporation (the "Holding
Company"), and NorthPoint Communications, Inc., a Delaware corporation ("NCI").
WHEREAS, Merger Sub is a corporation duly organized and validly
existing under the laws of the State of Delaware. The authorized capital stock
of Merger Sub consists of 1,000 shares of Common Stock, $.01 par value per
share, of which as of March 22, 1999, there were 100 shares issued and
outstanding, all of which are owned by the Holding Company.
WHEREAS, NCI is a corporation duly organized and validly existing under the
laws of the State of Delaware. The authorized capital stock of NCI consists of
110,761,600 shares, 75,000,000 of which are designated "Common Stock," $0.001
par value per share (the "NCI Common Stock"), of which 11,162,113 shares are
outstanding, and 35,761,600 of which are designated "Preferred Stock," $0.001
par value per share, of which 17,563,187 shares are designated "Series B
Preferred Stock," 16,450,721 of which are outstanding (the "NCI Series B
Preferred Stock"), and 18,198,413 shares are designated "Series C Preferred
Stock," 18,009,405 of which are outstanding (the "NCI Series C Preferred Stock,"
and together with the NCI Common Stock and the NCI Series B Preferred Stock, the
"NCI Capital Stock").
WHEREAS, the Holding Company is a corporation duly organized and validly
existing under the laws of the State of Delaware. The authorized capital stock
of the Holding Company consists of 170,000,000 shares, 125,000,000 of which are
designated "Common Stock," $0.001 par value per share (the "Holding Company
Common Stock"), none of which are outstanding, and 45,000,000 of which are
designated "Preferred Stock," $0.001 par value per share, of which 17,563,187
shares are designated "Series B Preferred Stock," none of which are outstanding
(the "Holding Company Series B Preferred Stock"), 18,198,413 shares are
designated "Series C Preferred Stock," none of which are outstanding (the
"Holding Company Series C Preferred Stock"), 3,640,000 shares are designated
"Series D Preferred Stock," none of which are outstanding (the "Holding Company
Series D Preferred Stock"), and 3,640,000 shares are designated as "Series D-1
Preferred Stock," none of which are outstanding (the "Holding Company Series D-1
Preferred Stock"). 8,000,000 shares of the Common Stock authorized to be
<PAGE>
issued are designated as "Class B Common Stock," none of which are outstanding
(the "Holding Company Class B Common Stock," and together with the Holding
Company Common Stock, the Holding Company Series B Preferred Stock, the
Holding Company Series C Preferred Stock, the Holding Company Series D
Preferred Stock and the Holding Company Series D-1 Preferred Stock, the
"Holding Company Capital Stock").
WHEREAS, Section 251 of the General Corporation Law of the State of
Delaware permits the merger of two business corporations of the State of
Delaware.
WHEREAS, Merger Sub, the Holding Company and NCI and the respective
Boards of Directors thereof deem it advisable and to the advantage, welfare, and
best interests of said corporations and their respective stockholders to merge
Merger Sub with and into NCI (the "Merger") pursuant to the provisions of the
General Corporation Law of the State of Delaware, whereby, among other things,
each issued and outstanding share of NCI Capital Stock will be exchanged and
converted into the right to receive shares of Holding Company Capital Stock,
upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I.
TERMS
Section 1.1. Upon the effective time of the Merger (as defined
below), Merger Sub shall be merged with and into NCI pursuant to the provisions
of the General Corporation Law of the State of Delaware, with NCI as the
surviving corporation (sometimes hereinafter referred to as the "Surviving
Corporation"). NCI shall continue to exist under its present name pursuant to
the provisions of the General Corporation Law of the State of Delaware. The
separate existence of Merger Sub shall cease at such effective time in
accordance with the provisions of the General Corporation Law of the State of
Delaware, and NCI shall succeed, without other transfer, to all of the rights
and property of Merger Sub and shall assume all of the liabilities and
obligations of Merger Sub.
Section 1.2. If this Agreement is duly adopted by the requisite vote
or written consent of the stockholders entitled to vote thereon of each of
Merger Sub and NCI, as provided by the applicable laws of the State of Delaware,
this Agreement, executed in accordance with the law of the State of Delaware,
shall be filed with the Secretary of State of the State of Delaware. The Merger
shall become effective when this Agreement has been filed with the Secretary of
State of the State of Delaware, unless this Agreement is previously terminated
by the Board of Directors of either Merger Sub or NCI, notwithstanding approval
of this Agreement by the stockholders of either or both of Merger Sub or NCI,
herein sometimes referred to as the "effective time."
2
<PAGE>
ARTICLE II.
CERTIFICATE OF INCORPORATION AND BYLAWS
Section 2.1. From and after the effective time, the Certificate of
Incorporation of NCI shall be amended so that Article IV of NCI's Certificate of
Incorporation shall read in its entirety as follows: "The total number of shares
of all classes of stock which the Corporation is authorized to issue is 1,000,
all of which shall consist of Common Stock, par value $0.001 per share.", and,
as so amended, shall be the Certificate of Incorporation of the Surviving
Corporation and shall continue in full force and effect until changed, altered
or amended as therein provided and in the manner prescribed by the provisions of
the General Corporation Law of the State of Delaware.
Section 2.2. The Bylaws of NCI in effect at the effective time of the
Merger shall be the Bylaws of Surviving Corporation and shall continue in full
force and effect until changed, altered or amended as therein provided and in
the manner prescribed by the provisions of the General Corporation Law of the
State of Delaware.
ARTICLE III.
OFFICERS AND DIRECTORS
The directors and officers of NCI in office immediately prior to the
effective time of the Merger shall be the directors and officers, respectively
of the Surviving Corporation, all of whom shall hold their directorships and
offices until the election and qualification of their respective successors or
until their tenure is otherwise terminated in accordance with the Bylaws of the
Surviving Corporation.
ARTICLE IV.
EFFECT OF THE MERGER ON CAPITAL STOCK;
EXCHANGE OF CERTIFICATES
Section 4.1. Upon the effective time of the Merger:
(a) Each share of Common Stock, $0.01 par value per share, of Merger
Sub issued and outstanding immediately prior to the effective time shall, by
virtue of the Merger and without any action on the part of the holders thereof,
be automatically converted into one share of common stock, $0.001 par value per
share, of the Surviving Corporation.
(b) Each share of NCI Capital Stock, $0.001 par value per share, that
is (1) owned by NCI as treasury stock, or (2) authorized but unissued, shall, by
virtue of the Merger and without any action on the part of Merger Sub or NCI,
cease to be outstanding, be canceled and retired without payment of any
consideration therefor and cease to exist.
(c) Each share of NCI Common Stock issued and outstanding immediately
prior to the effective time (other than shares canceled pursuant to clause (b)
above)
3
<PAGE>
shall, be exchanged and converted into the right to receive one share of
Holding Company Common Stock.
(d) Each share of NCI Series B Preferred Stock issued and outstanding
immediately prior to the effective time (other than shares canceled pursuant to
clause (b) above) shall, be exchanged and converted into the right to receive
one share of Holding Company Series B Preferred Stock.
(e) Each share of NCI Series C Preferred Stock issued and outstanding
immediately prior to the effective time (other than shares canceled pursuant to
clause (b) above) shall, be exchanged and converted into the right to receive
one share of Holding Company Series C Preferred Stock.
(f) Each certificate representing any such NCI Capital Stock shall
thereafter represent the right to receive a certificate representing the shares
of Holding Company Capital Stock into which such NCI Capital Stock have been
automatically converted.
Section 4.2. Following the effective time, the Holding Company shall
deliver to each holder of record, other than NCI or any subsidiary of NCI, of a
certificate which immediately prior to the effective time represented issued and
outstanding shares of NCI Capital Stock (each an "NCI Certificate"), a
certificate (a "Holding Company Certificate") representing that number of shares
of Holding Company Capital Stock that such holder has the right to receive
pursuant to Section 4.1 with respect to such NCI Certificate, against receipt by
the Holding Company of (i) such NCI Certificate for cancellation, and (ii) an
executed letter of transmittal, and the NCI Certificate so surrendered shall be
canceled. In the event of a transfer of ownership of shares of NCI Capital
Stock that is not registered on the transfer records of NCI, a Holding Company
Certificate representing the proper number of shares of Holding Company Capital
Stock may be issued to a transferee if the NCI Certificate representing such NCI
Capital Stock is presented to the Holding Company, accompanied by all documents
required to evidence and effect such transfer and by evidence that any
applicable stock or other transfer taxes have been paid, Until surrendered as
contemplated in this Section 4.2, each NCI Certificate shall be deemed, on and
after the effective time, to represent only the right to receive upon such
surrender, Holding Company Certificates representing shares of Holding Company
Capital Stock as contemplated by Section 4.1, without interest. No fractional
shares of Common Stock of the Surviving Corporation shall be issued upon the
effective time of the Merger.
Section 4.3. All shares of Holding Company Capital Stock issued upon
the surrender for exchange of shares of NCI Capital Stock in accordance with the
terms of this Article IV shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of NCI Capital Stock. If,
after the effective time, any NCI Certificate is presented to the Surviving
Corporation for any reason, such NCI Certificate shall be canceled and exchanged
as provided in this Article IV.
Section 4.4. Neither the Holding Company, Merger Sub nor the Surviving
Corporation shall be liable to any holder of shares of NCI Capital Stock or
Holding Company Capital Stock, as the case may be, for shares of Holding Company
Capital Stock (or dividends or
4
<PAGE>
distributions with respect thereto) to be issued in exchange for NCI Capital
Stock pursuant to this Article IV, if such shares are properly delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
Section 4.5. In the event any NCI Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit to that effect by the
record owner claiming such NCI Certificate to be lost, stolen or destroyed and,
if required by the Holding Company, the posting by such person of a bond in such
amount as the Holding Company may reasonably direct as indemnity against any
claim that may be made against it with respect to such NCI Certificate, the
Holding Company will issue in exchange for such lost, stolen or destroyed NCI
Certificate the shares of Holding Company Capital Stock deliverable in respect
thereof pursuant to this Agreement.
ARTICLE V.
CONVERSION OF OPTIONS AND WARRANTS
Section 5.1. At the effective time, each of NCI's then outstanding
employee stock options (collectively, the "Options") to purchase NCI Common
Stock which have not been exercised or otherwise converted as of the effective
time, by virtue of the Merger and without any further action on the part of any
holder thereof, shall be assumed by the Holding Company and automatically
converted into an option to purchase that number of shares of Holding Company
Common Stock equal to the number of shares of NCI Common Stock covered by such
Option immediately prior to the effective time, at an exercise price per share
of Holding Company Common Stock equal to the exercise price in effect under such
Option immediately prior to the effective time, which option to purchase Holding
Company Common Stock shall contain the same terms, status as an "incentive stock
option" under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") (if such Option was theretofore an NCI incentive stock option), vesting
schedule (without acceleration thereof by virtue of the Merger and the
transactions contemplated hereby and otherwise be on substantially the same
terms and conditions as set forth in the assumed Option. The parties intend
that the assumption and conversion of Options under this Section 5.1 shall meet
the requirements of Section 424(a) of the Code and this Section 5.1 shall be
interpreted in a manner consistent with such interpretation.
Section 5.2. At the effective time, each of NCI's then outstanding
warrants (collectively, the "Warrants") to purchase NCI Common Stock which have
not been exercised or otherwise converted as of the effective time, by virtue of
the Merger and without any further action on the part of any holder thereof,
shall be assumed by the Holding Company and automatically become exercisable or
convertible into that number of shares of Holding Company Common Stock equal to
the number of shares of NCI Common Stock covered by such Warrant immediately
prior to the effective time, at an exercise price per share of Holding Company
Common Stock equal to the exercise price in effect under such Warrant
immediately prior to the effective time, which Warrant shall be on substantially
the same terms and conditions as set forth in the assumed Warrant.
5
<PAGE>
ARTICLE VI.
TERMINATION AND AMENDMENT
Section 6.1. At any time prior to the effective time, this Agreement
may be amended by the Boards of Directors of Merger Sub and NCI to the extent
permitted by the laws of the State of Delaware, notwithstanding favorable action
on the Merger by the stockholders of either or both of Merger Sub or NCI.
Section 6.2. At any time prior to the effective time, this Agreement
may be terminated and abandoned by the Board of Directors of either Merger Sub
or NCI, notwithstanding favorable action on the Merger by the stockholders of
either or both of Merger Sub or NCI.
ARTICLE VII.
REPRESENTATIONS AND WARRANTIES OF HOLDING COMPANY
The Holding Company hereby represents and warrants to NCI and its
stockholders as follows:
Section 7.1. The Holding Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has full corporate power and authority to
own or lease its properties and conduct its business as currently conducted,
and is duly qualified as a foreign corporation and in good standing in all
jurisdictions in which the character of the property owned or leased or the
nature of the business transacted by it makes qualification necessary except
where the failure to be so qualified would not have a material adverse effect
on the business, properties, financial condition or results of operations of
the Company and its subsidiaries, taken as a whole (a "Material Adverse
Effect"). The outstanding shares of capital stock of each of its subsidiaries
have been duly authorized and validly issued, are fully paid and non-
assessable, and are owned by the Holding Company free and clear of all liens,
encumbrances and equities and claims; and no options, warrants or other rights
to purchase, agreements or other obligations to issue or other rights to
convert any obligations into shares of capital stock or ownership interests in
such subsidiaries are outstanding.
Section 7.2. The Holding Company Capital Stock, when issued to the
stockholders of NCI as provided herein, will be duly and validly issued, fully
paid and nonassessable. The Holding Company has all requisite right, power and
authority to enter into this Agreement, to carry out its obligations hereunder
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement by the Holding Company, and the consummation by the
Holding Company of the transactions contemplated hereby have been duly
authorized by all necessary action on the part of the Holding Company and, no
other proceedings are necessary to authorize this Agreement or to consummate
the transactions contemplated hereby. This Agreement has been duly executed
and delivered by the Holding Company and constitutes the legal, valid and
binding obligation of the Holding Company
6
<PAGE>
enforceable against the Holding Company in accordance with its terms. Except
as set forth in the Fifth Amended and Restated Rights Agreement to be executed
by NCI, the Holding Company and certain stockholders of the Holding Company
immediately following the effective time, the issuance of the Holding Company
Capital Stock in accordance with this Agreement are not and will not be
subject to any preemptive rights, rights of first refusal or rights of
participation that have not been properly waived or complied with.
Section 7.3. The execution and delivery of this Agreement by the
Holding Company does not, and the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give rise
to a right of termination, cancellation, modification or acceleration of any
obligation under (i) any provision of the Amended Certificate of Incorporation
and Amended and Restated Bylaws of the Holding Company or any subsidiary, (ii)
any mortgage, indenture, lease, contract or other agreement or instrument,
permit, concession, franchise or license to which the Company or any
subsidiary or any of their respective properties or assets are subject, or
(iii) any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or any subsidiary or their respective properties or
assets, except in the case of (ii) and (iii) for any of the foregoing that in
the aggregate would not have a Material Adverse Effect.
ARTICLE VIII.
MISCELLANEOUS
Section 8.1. In the event that this Agreement shall have been fully
approved and adopted on behalf of Merger Sub and NCI in accordance with the
provisions of the General Corporation Law of the State of Delaware, Merger Sub
and NCI agree that they will cause to be executed and filed and recorded any
document or documents prescribed by the laws of the State of Delaware, and that
they will cause to be performed all necessary acts within the State of Delaware
and elsewhere to effectuate the Merger herein provided for.
Section 8.2. The Board of Directors and the proper officers of Merger
Sub and of NCI are hereby authorized, empowered, and directed to do any and all
acts and things, and to make, execute, deliver, file, and record any and all
instruments, papers, and documents which shall be or become necessary, proper,
or convenient to carry out or put into effect any of the provisions of this
Agreement or of the Merger herein provided for.
Section 8.3. This Agreement has been duly approved by the Board of
Directors of Merger Sub and by the Board of Directors of NCI.
Section 8.4. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement and
Plan of Merger to be executed by duly authorized officers this 22nd day of
March, 1999.
NORTHPOINT MERGER SUB, INC.,
a Delaware corporation
By: /s/ Michael Malaga
---------------------------
Michael Malaga,
President
NORTHPOINT COMMUNICATIONS, INC.,
a Delaware corporation
By: /s/ Michael Malaga
----------------------------
Michael Malaga,
Chief Executive Officer
NORTHPOINT COMMUNICATIONS
HOLDINGS, INC.,
a Delaware corporation
By: /s/ Michael Malaga
----------------------------
Michael Malaga,
Chief Executive Officer
<PAGE>
CERTIFICATE OF SECRETARY
OF
NORTHPOINT COMMUNICATIONS, INC.
The undersigned, Steven Gorosh, hereby certifies that:
1. I am the duly appointed and acting Secretary of NorthPoint
Communications, Inc., a Delaware corporation (the "Corporation").
2. The number of outstanding shares of the Corporation at March 22, 1999,
the date of the approval and adoption of the Agreement and Plan of Merger to
which this certificate is attached by written consent in lieu of a stockholder
meeting, was (i) 11,162,113 shares of Common Stock, $.001 par value (the "Common
Stock"); (ii) 16,450,721 shares of Series B Preferred Stock, $.001 par value
(the "Series A Preferred Stock"); and (iii) 18,009,405 shares of Series C
Preferred Stock, $.001 par value (the "Series C Preferred Stock").
3. The principal terms of the Agreement and Plan of Merger to which this
certificate is attached, have been duly approved by the Board of Directors of
the Corporation, was then submitted to the stockholders of the Corporation for
approval and adoption by written consent in lieu of a stockholder meeting, and
stockholders of the Corporation, holding a number of outstanding shares of each
class equaling or exceeding the vote required in accordance with Delaware
General Corporation Law, adopted and approved the Agreement and Plan of Merger
by executing and delivering a written consent dated March 1, 1999.
4. The percentage vote required of the outstanding shares was (i) more
than 50% of the outstanding shares of Common Stock, voting as a single class;
(ii) more than 50% of the outstanding shares of Series B Preferred Stock, voting
as a single class; and (iii) more than 66-2/3% of the outstanding shares of
Series C Preferred Stock, voting as a single class, which taken together as a
whole constitute the approval of the holders of a majority of the outstanding
stock of the Corporation entitled to vote on the Agreement and Plan of Merger.
I further declare under penalty of perjury under the laws of the State of
Delaware that the matters set forth in this certificate are true and correct and
of my own knowledge.
<PAGE>
Dated: March 22, 1999.
/s/ Steven Gorosh
--------------------------
Steven Gorosh,
Secretary of NorthPoint Communications, Inc.
2
<PAGE>
CERTIFICATE OF SECRETARY
OF
NORTHPOINT MERGER SUB, INC.
The undersigned, Steven Gorosh, hereby certifies that:
1. I am the duly appointed and acting Secretary of NorthPoint Merger Sub,
Inc., a Delaware corporation (the "Corporation").
2. The number of outstanding shares of the Corporation at March 22, 1999,
the date of the approval and adoption of the Agreement and Plan of Merger to
which this certificate is attached by written consent in lieu of a stockholder
meeting, was 100 shares of Common Stock, $.01 par value (the "Common Stock").
3. The principal terms of the Agreement and Plan of Merger to which this
certificate is attached, have been duly approved by the Board of Directors of
the Corporation, was then submitted to the sole stockholder of the Corporation
for approval and adoption by written consent in lieu of a stockholder meeting,
and sole stockholder of the Corporation, holding all of the outstanding shares
of the Corporation, adopted and approved the Agreement and Plan of Merger by
executing and delivering a written consent dated March 22, 1999.
I further declare under penalty of perjury under the laws of the State of
Delaware that the matters set forth in this certificate are true and correct and
of my own knowledge.
<PAGE>
Dated: March 22, 1999.
/s/ Steven Gorosh
------------------------
Steven Gorosh,
Secretary of NorthPoint Merger Sub, Inc.
2
<PAGE>
EXHIBIT 10.23
ASSIGNMENT AND ASSUMPTION AGREEMENT
-----------------------------------
This ASSIGNMENT AND ASSUMPTION AGREEMENT (the "Assignment") is entered
into as of March 22, 1999, by and between NorthPoint Communications, Inc., a
Delaware corporation ("Assignor"), and NorthPoint Communications Holdings, Inc.,
a Delaware corporation ("Assignee").
RECITALS
--------
WHEREAS, Assignor intends to consummate a reorganization (the
"Reorganization") pursuant to which Assignor will become a wholly owned
subsidiary of Assignee.
WHEREAS, Assignor has entered into an Agreement and Plan of Merger
(the "Merger Agreement") with NorthPoint Merger Sub, Inc., a Delaware
corporation and a wholly owned subsidiary of Assignee ("Merger Sub"), pursuant
to which Merger Sub will merge (the "Merger") with and into Assignor, with
Assignor surviving the Merger as the "Surviving Corporation" and a wholly owned
subsidiary of Assignee.
WHEREAS, as a result of the Reorganization and by operation of law,
each of the holders of capital stock of Assignor immediately prior to the
consummation of the Reorganization will become the only holders of capital stock
of Assignee immediately after the consummation of the Reorganization, each
holding the same number of shares of capital stock of the same class of the
Assignee with the same rights, privileges, terms and conditions as the shares of
capital stock of Assignor held by such holders immediately prior to the
consummation of the Reorganization. The Assignee owns all of the capital stock
of the Assignor and has no other significant assets.
WHEREAS, subject to this Assignment, Assignor wishes assign, transfer
and convey all of its rights and obligations under the contracts listed on
Schedule 1 attached hereto (the "Assigned Contracts") to the Assignee on the
- ----------
terms set forth herein, and Assignee wishes to accept assignment of such rights
and to assume such obligations from Assignor on such terms.
AGREEMENT
---------
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Assignor does hereby assign, grant, bargain, sell, convey and
transfer to Assignee, and Assignee does hereby assume, all of Assignor's
right, title and interest in and to the Assigned Contracts, including, but not
limited to, all obligations and liabilities, of any nature whatsoever,
currently existing under the Assigned Contracts. This Assignment will replace
Assignee for Assignor under the Assigned Contracts.
<PAGE>
2. As of the date hereof, all rights, obligations and liabilities of
Assignor under the Assigned Contracts shall terminate, and Assignee shall
assume all of Assignor's rights, obligations and liabilities under the
Assigned Contracts.
3. This Assignment shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns.
4. No modification, waiver, amendment, discharge or change of this
Assignment shall be valid unless the same is in writing and signed by the
party against whom such modification, waiver, amendment, discharge or change
is sought to be enforced.
5. This Assignment shall be governed by, and construed in accordance
with, the internal laws of the State of California, without regard to conflict
of laws principles.
6. This Assignment may be executed in counterparts and by facsimile
signature, each of which shall be deemed to be an original, and all of which
together shall constitute one agreement binding on the parties hereto.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Assignment
and Assumption Agreement as of the date first written above.
NORTHPOINT COMMUNICATIONS, INC.,
a Delaware corporation
By: /s/ Michael Malaga
________________________________
Michael Malaga,
Chief Executive Officer
NORTHPOINT COMMUNICATIONS HOLDINGS, INC.,
a Delaware corporation
By: /s/ Michael Malaga
________________________________
Michael Malaga,
President
3
<PAGE>
SCHEDULE 1
----------
ASSIGNED CONTRACTS
------------------
1. Common Stock Purchase Agreements between FirstMile Communications, Inc.
and Robert Flood, Nathan Gregory, Michael Malaga, Timothy Monahan and
Steven Gorosh, dated June 4, 1997.
2. Common Stock Purchase Agreements between NorthPoint Communications, Inc. and
William Euske, dated August 13, 1997.
3. Series B Preferred Stock Purchase Agreement among NorthPoint Communications,
Inc. and certain of its stockholders, dated August 13, 1997.
4. Second Series B Preferred Stock Purchase Agreement among NorthPoint
Communications, Inc. and certain of its stockholders, dated August 13, 1997.
5. Amended and Restated Series C Preferred Stock Purchase Agreement among
NorthPoint Communications, Inc. and certain of its stockholders, dated
January 20, 1999.
6. Addendum to Series C Preferred Stock Purchase Agreement among NorthPoint
Communications, Inc. and certain of its stockholders, dated August 26, 1998.
7. Side letter relating to the purchase of Series C Preferred Stock between
NorthPoint Communications, Inc. and the Carlyle Group, dated February 19,
1999.
8. Warrant-for-End User Agreement dated as of August 26, 1998 between
NorthPoint Communications, Inc. and Intel Corporation.
9. Series C Preferred Stock Purchase Warrant between NorthPoint Communications,
Inc. and Intel Corporation, dated August 26, 1998.
10. Board Observer Agreement between NorthPoint Communications, Inc. and Intel
Corporation, dated August 26, 1998.
11. Side letter relating to information rights between NorthPoint
Communications, Inc. and Intel Corporation, dated January 19, 1999.
12. Warrant Agreement dated May 20, 1998, between NorthPoint Communications,
Inc. and Morgan Stanley Bridge Fund, L.L.C. (the "May Warrant Agreement").
13. Warrant Agreement dated July 10, 1998, between NorthPoint Communications,
Inc. and Morgan Stanley Senior Funding, Inc. (the "July Warrant
Agreement").
14. Warrant No. 2 dated May 20, 1998, issued by NorthPoint Communications, Inc.
under the May Warrant Agreement representing 250,000 warrants.
15. Warrant No. 2 dated November 2, 1998, issued by NorthPoint Communications,
Inc. under the July Warrant Agreement representing 42,857 1/7 warrants.
16. Warrant No. 3 dated December 1, 1998, issued by NorthPoint Communications,
Inc. under the July Warrant Agreement representing 42,857 1/7 warrants.
<PAGE>
17. Warrant No. 4 dated December 29, 1998, issued by NorthPoint Communications,
Inc. under the July Warrant Agreement representing 64,285 5/7 warrants.
18. Warrant No. 5 dated February 2, 1999, issued by NorthPoint Communications,
Inc. under the July Warrant Agreement representing 42,857 1/7 warrants.
19. Warrant No. 6 dated March 1, 1999, issued by NorthPoint Communications,
Inc. under the July Warrant Agreement representing 42,857 1/7 warrants.
20. Warrant No. 7 dated July 10, 1998, issued by NorthPoint Communications,
Inc. under the July Warrant Agreement representing 750,000 warrants.
21. Side letter relating to information rights between NorthPoint
Communications, Inc. and At Home Corporation, dated February 1999.
22. Side letter relating to the purchase of Series C Preferred Stock between
NorthPoint Communications, Inc. and Vulcan Ventures Incorporated, dated
February 19, 1999.
2
<PAGE>
Exhibit 10.24
FIRST AMENDMENT TO NOTE PURCHASE AGREEMENT
This FIRST AMENDMENT TO NOTE PURCHASE AGREEMENT (this "Amendment"), dated
as of March 22, 1999, is made by and between NORTHPOINT COMMUNICATIONS, INC., a
Delaware corporation (the "Company") and Morgan Stanley Senior Funding, Inc.
-------
("MS"). This Amendment amends the Note Purchase Agreement, dated as of July 10,
--
1998, between the Company and MS (said Agreement, as it may hereafter be
amended, supplemented or otherwise modified from time to time, being the "Note
----
Purchase Agreement"; the terms defined therein and not otherwise defined herein
- ------------------
being used herein as therein defined).
PRELIMINARY STATEMENT
---------------------
The Company has consummated a reorganization (the "Reorganization")
--------------
pursuant to which the Company became a wholly owned subsidiary of the NorthPoint
Communications Holdings, Inc. ("Holdings"). The Reorganization was effected by
--------
a merger between the Company and another Delaware corporation formed solely for
this purpose, which was a wholly owned subsidiary of Holdings, with the Company
as the surviving corporation of such merger. As a result of the Reorganization,
each of the holders of capital stock of the Company immediately prior to the
consummation of the Reorganization became the only holders of capital stock of
Holdings immediately after the consummation of the Reorganization, each holding
the same number of shares of capital stock of the same class of Holdings with
the same rights, privileges, terms and conditions as shares of capital stock of
the Company held by such holders immediately prior to the consummation of the
Reorganization. Holdings owns all of the capital stock of the Company and has
no other significant assets.
In order to permit the Reorganization, the Company desires, and MS has
agreed, to amend the Note Purchase Agreement as provided in this Amendment,
subject to the terms and conditions set forth in this Amendment.
NOW THEREFORE, in consideration of the mutual terms, conditions and other
agreements set forth herein, the Company and MS hereby agree as follows:
1. Amendments to Note Purchase Agreement. The Note Purchase Agreement is
-------------------------------------
hereby amended as follows:
(a) The following defined terms shall be added to the Defined Terms
contained in Schedule II to the Note Purchase Agreement:
"Holdings" means NorthPoint Communications Holdings, Inc., a Delaware
corporation.
<PAGE>
"Reorganization" means the reorganization of the Company pursuant to
which the Company became a wholly owned subsidiary of Holdings. The
Reorganization was effected by a merger between the Company and another
Delaware corporation formed solely for this purpose, which was a wholly
owned subsidiary of Holdings, with the Company as the surviving
corporation of such merger. As a result of the Reorganization, each of
the holders of capital stock of the Company immediately prior to the
consummation of the Reorganization became the only holders of capital
stock of the same class of Holdings immediately after the consummation of
the Reorganization, each holding the same number of shares of capital
stock of Holdings with the same rights, privileges, terms and conditions
as shares of capital stock of the Company held by such holders
immediately prior to the consummation of the Reorganization. Holdings
owns all of the capital stock of the Company and has no other significant
assets.
(b) Each of the Defined Terms contained in Schedule II to the Note
Purchase Agreement and listed below is amended and restated below as follows:
"Change of Control" means such time as (i) a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act)
becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act) of Voting Interests representing a greater percentage
of the total voting power of the Voting Interests of Holdings, on a fully
diluted basis, than is beneficially owned by the Existing Stockholders on
the date of the Reorganization; (ii) individuals who on the Closing Date
constitute the Board of Directors of the Company (together with any new
directors whose election by the Board of Directors of the Company or
whose nomination by the Board of Directors of the Company for election by
the Company's stockholders was approved by a vote of at least two-thirds
of the members of the Board of Directors of the Company then in office
who either were members of the Board of Directors of the Company on May
20, 1998 or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the members of
the Board of Directors then in office; (iii) individuals who on the date
of the Reorganization constitute the Board of Directors of Holdings
(together with any new directors whose election by the Board of Directors
of Holdings or whose nomination by the Board of Directors of Holdings for
election by Holdings' stockholders was approved by a vote of at least two-
thirds of the members of the Board of Directors of Holdings then in
office who either were members of the Board of Directors of Holdings on
the date of the Reorganization or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the members of the Board of Directors then in office; (iv)
the Company or Holdings, either individually or together with one or more
of its Subsidiaries, shall convey, sell, lease, assign, transfer or
otherwise dispose of, or agree in writing to convey, sell, lease, assign,
transfer or otherwise dispose of, all or substantially all of the
property and assets of the Company or Holdings and its Subsidiaries,
taken as a whole (either in one transaction or a series of related
transactions), or (v) Holdings shall for any reason hold less than all of
the capital stock of the Company.
2
<PAGE>
"Co-Sale Agreement" means the Fourth Amended and Restated Right of First
Refusal and Co-Sale Agreement, dated as of the date of the Reorganization,
among the Founders, Holding, the Company, MS and certain other
securityholders of Holdings.
"Holdings Letter Agreement" means the letter agreement, dated the date of
the Reorganization, between Holdings and Morgan Stanley & Co.
Incorporated.
"Material Adverse Effect" means a material adverse effect on (a) the
business, condition (financial or otherwise), operations, results of
operations, performance, properties, assets, liabilities (contingent or
otherwise), value or prospects of Holdings and its Subsidiaries, taken as
a whole, (b) the ability of any of the Obligors to perform its obligations
under this Agreement or any of the other Note Documents to which it is or
is to be a party, (c) the rights and remedies afforded to you, any of the
Other Purchasers or any of the other holders of the Notes under this
Agreement or any of the other Note Documents or (d) the ability of Holdings
or the Company to consummate the Refinancing.
"Note Documents" means, collectively, this Agreement, the Other
Agreements, the Warrant Agreement, the Rights Agreement, the Co-Sale
Agreement, the Warrant Agreement dated May 20, 1998 among the Company,
Morgan Stanley Bridge Fund L.L.C. and Northpoint Communications of
Virginia, Inc., the Notes, the Rollover Notes (if issued), the Warrants,
the Commitment Letter, the Letter Agreement, the Holdings Letter
Agreement, the guaranty by NorthPoint Communications of Virginia, Inc.
and the guaranties of the Subsidiaries of the Company entered into
pursuant to Section 9.10, the guaranty by Holdings dated as of the date
of the Reorganization, and all other agreements, instruments and other
documents evidencing any Obligation of the Company or any of the other
Obligors, in each case as such agreement, instrument or other document
may be amended, supplemented or otherwise modified hereafter from time to
time in accordance with the terms thereof and Section 17.
"Obligors" means, collectively, Holdings, the Company, NorthPoint
Communications of Virginia, Inc. and each other Subsidiary of the Company
that becomes party to any guarantee after the date of this Agreement
pursuant to Section 9.10.
"Refinancing" means the private placement or public offering and sale by
Holdings or the Company of Refinancing Securities in an amount of at least
$100,000,000 in gross proceeds.
"Refinancing Securities" means high yield debt securities, including
redeemable preferred stock, of Holdings or the Company.
"Rights Agreement" means the Fifth Amended and Restated Rights Agreement
dated as of the date of the Reorganization, among Holdings, the Company, MS
and certain other securityholders of Holdings.
3
<PAGE>
(c) Section 7.3 of the Note Purchase Agreement is amended and restated as
follows:
7.3. Mandatory Redemptions of the Notes (or Rollover Notes).
Upon receipt by Holdings or any of its Subsidiaries of the Net Cash
Proceeds from (a) the issuance or incurrence by Holdings or any of its
Subsidiaries of any Indebtedness (including, without limitation, the
Refinancing Securities, but other than Indebtedness of the Company and its
Subsidiaries issued or incurred pursuant to any of Sections 10.3(a) or
10.3(c) through 10.3(h) of the Note Purchase Agreement), (b) the sale or
issuance by Holdings or any of its Subsidiaries of any shares of its
capital stock (or other ownership or profit interests therein), any
securities convertible into or exchangeable for shares of its capital stock
(or other ownership or profit interests therein) or any warrants, options
or other rights for the purchase or acquisition of any shares of its
capital stock (or other ownership or profit interests therein) and (c) any
Asset Sale (other than (i) Asset Sales effected in the ordinary course of
the Company's or the applicable Subsidiary's business and (ii) Asset Sales
effected since the date of this Agreement the aggregate fair value of which
does not exceed $250,000), the Company shall redeem outstanding Notes (or
Rollover Notes) in an amount equal to the lesser of (A) 100% of the
aggregate principal amount of all Notes (or Rollover Notes) outstanding on
the date of such redemption and (B) the amount of such Net Cash Proceeds,
in either case at a purchase price in cash equal to 100% of the aggregate
principal amount thereof plus accrued and unpaid interest to the date of
such redemption and all fees, expenses and other payments due and payable
to the holders of the Notes (or Rollover Notes) under the Note Documents on
such date; provided that, if Morgan Stanley & Co. Incorporated is not
offered the opportunity, on market terms, to act as exclusive agent or sole
underwriter for any transaction the proceeds of which are used to repay the
Notes (including any issuance and sale of debt or equity securities, any
asset sale, any credit facility financing or any other transaction but
excluding (i) an equity investment by a stockholder existing on May 28,
1998, (ii) an equity investment by a strategic investor primarily engaged
in the telecommunications business and (iii) an equity investment by Morgan
Stanley & Co. Incorporated or any of its affiliates), then the Company
shall redeem the outstanding Notes at a purchase price in cash equal to
103.5% of the aggregate principal amount thereof plus accrued and unpaid
interest to the date of such redemption and all fees, expenses and other
payments due and payable to the holders of the Notes under the Note
Documents on such date.
(d) Section 10.6 of the Note Purchase Agreement is amended by inserting ";
and" at the end of clause (h) thereof and adding a new clause (i) as follows:
(i) the Company and its Subsidiaries may consummate the Reorganization.
2. Conditions to Amendment of Note Purchase Agreement. The effectiveness
--------------------------------------------------
of this Amendment is subject to satisfaction by the Company, on or prior to the
date hereof, of the following conditions:
2.1. Documents Required.
------------------
4
<PAGE>
MS shall have received the following documents, each dated as of the date
of this Amendment (except as otherwise specified below) and in the form of the
respective Exhibit attached hereto, if any, or otherwise in form and substance
satisfactory MS:
(a) Agreement and Plan of Merger. The Agreement and Plan of Merger of
----------------------------
NorthPoint Merger Sub, Inc., a Delaware corporation, and the Company, duly
executed by the Company.
(b) Assignment and Assumption of Asset Purchase Agreement. The Assignment
-----------------------------------------------------
and Assumption of Asset Purchase Agreement, dated as of the date of the
Reorganization, between the Company, as Assignor, and Holdings, as Assignee.
(c) Co-Sale Agreement. The Fourth Amended and Restated Right of First
-----------------
Refusal and Co-Sale Agreement, dated as of the date of the Reorganization,
among the Founders, Holdings, the Company, MS and certain securityholders
of Holdings.
(d) Fifth Amended and Restated Rights Agreement. The Fifth Amended and
-------------------------------------------
Restated Rights Agreement dated as of the date of the Reorganization, among
Holdings, the Company, MS and certain other securityholders of Holdings.
(e) Holdings Letter Agreement. The letter agreement, dated the date of the
-------------------------
Reorganization, between Holdings and Morgan Stanley & Co. Incorporated.
(f) Guaranty. The Guaranty of Holdings, dated as of the date of the
--------
Reorganization, in favor of the Purchasers in the form of Exhibit A to this
Amendment.
(g) Corporate Approvals of the Company. Certified copies of the
----------------------------------
resolutions of the board of directors (or persons performing similar
functions) of the Company approving the Reorganization and all documents
evidencing necessary corporate action with respect to the Reorganization.
(h) Corporate Approvals of Holdings. Certified copies of the resolutions
-------------------------------
of the board of directors (or persons performing similar functions) of
Holdings approving the Reorganization and all documents evidencing
necessary corporate action with respect to the Reorganization.
(i) Certificate of Incorporation of the Company. A copy of the certificate
-------------------------------------------
of incorporation of the Company and each amendment thereto, certified (as
of a date reasonably near the date of this Amendment) by the Secretary of
State of the State of Delaware as being a true and complete copy thereof.
(j) Certificate of Incorporation of Holdings. A copy of the certificate of
----------------------------------------
incorporation of Holdings and each amendment thereto, certified (as of a
date reasonably near the date of this Amendment) by the Secretary of State
of the State of Delaware as being a true and complete copy thereof.
5
<PAGE>
(k) Secretary's Certificate of the Company. A certificate from the
--------------------------------------
secretary or an assistant secretary (or a person performing similar
functions) of the Company certifying:
(i) the absence of any amendments to the certificate of
incorporation of the Company since the date of the Secretary of State's
certificate referred to in subsection (i) of this Section 2.1;
(ii) the completeness and accuracy of the resolutions of the board of
directors of the Company and all documents evidencing other necessary
corporate action thereof referred to under subsection (g) of this Section
2.1;
(iii) the completeness and accuracy of the bylaws of the Company as in
effect on the date the resolutions specified in subsection (g) of this
Section 2.1 were adopted and on the date of this Amendment (a copy of
which shall be attached to such certificate);
(iv) the names and true signatures of the officers of the Company
authorized to sign each of this Amendment and the other documents to be
executed by the Company in connection with the Reorganization; and
(v) such other matters MS shall specify relating to the existence
and good standing of the Company and the corporate and other necessary
authority for, and the validity of, this Amendment and the other
documents to be executed by the Company in connection with the
Reorganization and any other matters relevant to any of the foregoing.
(l) Secretary's Certificate of Holdings. A certificate from the secretary
-----------------------------------
or an assistant secretary (or a person performing similar functions) of
Holdings certifying:
(i) the absence of any amendments to the certificate of
incorporation of Holdings since the date of the Secretary of State's
certificate referred to in subsection (j) of this Section 2.1;
(ii) the completeness and accuracy of the resolutions of the board
of directors of Holdings and all documents evidencing other necessary
corporate action thereof referred to under subsection (h) of this Section
2.1;
(iii) the completeness and accuracy of the bylaws of Holdings as in
effect on the date the resolutions specified in subsection (h) of this
Section 2.1 were adopted and on the date of this Amendment (a copy of
which shall be attached to such certificate);
6
<PAGE>
(iv) the names and true signatures of the officers of Holdings
authorized to sign each of this Amendment and the other documents to be
executed by Holdings in connection with the Reorganization; and
(v) such other matters MS shall specify relating to the existence
and good standing of Holdings and the corporate and other necessary
authority for, and the validity of, this Amendment and the other
documents to be executed by Holdings in connection with the
Reorganization and any other matters relevant to any of the foregoing.
2.2. Opinion of Counsel.
------------------
MS shall have received the favorable opinion of counsel of the Company and
Holdings, dated the date of this Amendment, in substantially the form of Exhibit
B attached hereto, and addressing such other matters as MS (or counsel to MS)
may reasonably request.
3. Expenses. The Company will pay, within 15 days of each demand
--------
therefor (such demand to be accompanied by supporting documentation in
reasonable detail), all costs and expenses incurred by MS (including, without
limitation, reasonable attorneys' fees of a special counsel) in connection
with the preparation, review, execution and delivery of this Amendment, the
Guaranty by Holdings and the other agreements or documents delivered in
connection with the Reorganization
4. Ratification and Confirmation of Note Purchase Agreement. Except as
--------------------------------------------------------
specifically amended hereby, the Note Purchase Agreement is hereby ratified and
confirmed and shall remain in full force and effect in accordance with its
terms.
5. Execution in Counterpart. The Amendment may be executed by the
------------------------
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a
number of copies hereof each signed by less than all, but together signed by
all of the parties hereto.
[Signature Page Follows]
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<PAGE>
IN WITNESS WHEREOF, the parties have hereunto executed this Amendment as of
the day first above set forth.
NORTHPOINT COMMUNICATIONS, INC.
By:__________________________________
Name:
Title:
MORGAN STANLEY SENIOR FUNDING, INC.
By:___________________________________
Name:
Title:
<PAGE>
EXHIBIT A
---------
[FORM OF GUARANTY OF HOLDINGS]
<PAGE>
EXHIBIT B
---------
Opinion of Counsel for Holdings and the Company
(A) Each of Holdings and the Company (i) is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware; (ii) is duly qualified as a foreign corporation and in good
standing in each other jurisdiction in which the ownership, lease or operation
of its property and assets or the conduct of its business requires
qualification, other than in any such jurisdiction where failure to be so
qualified or in good standing, either individually or in the aggregate, could
not reasonably expected to have a material adverse effect, and (iii) has all
corporate power and authority to own or hold under lease all of the property and
assets it purports to own or hold under lease and to conduct the business it
presently conducts.
(B) Each of the First Amendment to Note Purchase Agreement, the Co-
Sale Agreement, the Rights Agreement, the Holdings Letter Agreement, the
Guaranty by Holdings, the Agreement and Plan of Merger of NorthPoint Merger Sub,
Inc. and NorthPoint Communications, Inc. dated as of the date of the
Reorganization, and the Assignment and Assumption of Asset Purchase Agreement
dated as of the date of the Reorganization between the Company and Holdings
(collectively the "Transaction Documents") to which Holdings or the Company is a
party has been duly authorized, executed and delivered by Holdings or the
Company, as the case may be, and constitutes the legal, valid and binding
obligation of Holdings or the Company, enforceable against Holdings or the
Company in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium or similar laws of
general applicability relating to or affecting creditors' rights and to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
(C) The execution, delivery and performance by Holdings and the
Company of the Transaction Documents to which it is a party do not (i)
contravene Holdings' or the Company's certificate of incorporation or bylaws,
(ii) violate any applicable provision of any presently existing law or
regulation of the United States of America or any Governmental Authority thereof
or of the State of New York or (iii) conflict with or result in the breach of,
or constitute a default under, or result in or require the creation or
imposition of any Lien upon or with respect to any of the property or assets of
Holdings or the Company under any material agreement or instrument of Holdings
or the Company. No consent, approval or authorization of, or notice to, or
other action by, any United States federal or New York State Governmental
Authority is required for the due execution, delivery or performance by Holdings
or the Company of the Transaction Documents to which it is a party or the
consummation of the transactions contemplated thereby.
<PAGE>
EXHIBIT 21
Subsidiaries
NorthPoint Communications, Inc.
NorthPoint Communications of Virginia, Inc.
<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
March 30, 1999
