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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number: 000-29828
NORTHPOINT COMMUNICATIONS GROUP, INC.
(Exact name of Registrant as Specified in its Charter)
DELAWARE 52-2147716
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
303 Second Street, South Tower
San Francisco, California 94107
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (415) 403-4003
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [_] No
The number of shares of Common Stock, par value $.001 per share, of NorthPoint
Communications Group, Inc. outstanding as of May 10, 2000 was 131,989,809.
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. Consolidated Financial Statements........................................................................... 3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................................................. 30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................................................... 31
Item 2. Changes in Securities and Use of Proceeds................................................................... 31
Item 3. Defaults Upon Senior Securities............................................................................. 31
Item 4. Submission of Matters to a Vote of Security Holders......................................................... 31
Item 5. Other Information........................................................................................... 31
Item 6. Exhibits and Reports on Form 8-K............................................................................ 32
</TABLE>
2
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PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.
NORTHPOINT COMMUNICATIONS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in 000's, except share and per share amounts)
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
--------- ------------
2000 1999
---- ----
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 278,731 $ 95,019
Short-term investments 133,382 115,034
Accounts receivable, net of an allowance of $823 and $834, respectively 15,663 10,558
Inventories 6,971 4,439
Prepaid expenses and other assets 35,205 19,555
------------ ------------
Total current assets 469,952 244,605
Property and equipment:
Networking equipment 165,553 117,625
Central office collocation space improvements 81,752 61,637
Computers and software 59,736 40,739
Leasehold improvements 21,052 14,176
Furniture, fixtures and office equipment 11,479 10,192
------------ ------------
Total property and equipment 339,572 244,369
Less accumulated depreciation and amortization (27,989) (17,245)
------------ ------------
Property and equipment, net 311,583 227,124
Long-term investment 6,740 6,740
Deposits 452 691
------------ ------------
Total assets $ 788,727 $ 479,160
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, including related party payables of $3,859 and $6,161, respectively $ 38,976 $ 56,004
Accrued expenses 30,104 25,675
Deferred short-term credits 348 348
Capital lease obligations, current portion, net of unamortized debt discount
of $265 and $265, respectively 1,053 1,027
------------ ------------
Total current liabilities 70,481 83,054
Capital lease obligations, long-term portion, net of unamortized debt discount
of $266 and $332, respectively 1,356 1,653
Deferred long-term credits 1,392 1,392
Notes payable 400,000
Term loan 85,000 85,000
------------ ------------
Total liabilities 558,229 171,099
------------ ------------
Commitments and contingencies (Note 3)
Stockholders' equity:
Common stock, $0.001 par value; 281,250,000 shares authorized at March 31, 2000 and
December 31, 1999; 131,214,096 and 126,469,210 shares issued and outstanding at
March 31, 2000 and December 31, 1999, respectively (the December 31, 1999 shares
issued and outstanding includes 2,466,724 shares of Class B common stock that
converted into common stock in March 2000) 131 126
Warrants 2,619 8,701
Additional paid-in capital 532,946 525,294
Deferred stock compensation (11,195) (12,405)
Accumulated other comprehensive income (79) 330
Accumulated deficit (293,924) (213,985)
------------ ------------
Total stockholders' equity 230,498 308,061
------------ ------------
Total liabilities and stockholders' equity $ 788,727 $ 479,160
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
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NORTHPOINT COMMUNICATIONS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in 000's, except share and per share amounts)
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
March 31,
---------
2000 1999
---- ----
<S> <C> <C>
Revenues $ 19,971 $ 1,283
Operating expenses:
Network expenses 33,538 3,932
Selling, marketing, general and administrative 48,446 14,379
Amortization of deferred stock compensation 1,211 1,592
Depreciation and amortization 10,743 1,387
------------ -----------
Total operating expenses 93,938 21,290
------------ -----------
Loss from operations (73,967) (20,007)
Interest income 5,038 238
Interest expense (11,010) (3,583)
------------ -----------
Net loss $ (79,939) $ (23,352)
============ ===========
Net loss per common share - basic and diluted $ (0.62) $ (0.94)
============ ===========
Weighted average shares used in computing net loss per
common share - basic and diluted 129,010,470 24,908,053
============ ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
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NORTHPOINT COMMUNICATIONS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in 000's)
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
March 31,
---------
2000 1999
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (79,939) $ (23,352)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 10,743 1,387
Amortization of deferred stock compensation 1,211 1,592
Amortization of debt discount 66 1,419
Changes in assets and liabilities:
Accounts receivable (5,105) (290)
Inventories (2,532) --
Prepaid expenses and other assets (15,650) (2,651)
Deposits 239 (49)
Accounts payable (17,029) 3,486
Accrued expenses 4,429 9,031
Deferred revenue -- (189)
--------- ---------
Net cash used in operating activities (103,567) (9,616)
Cash flows from investing activities:
Purchase of short-term investments (18,757) --
Purchase of property and equipment (95,202) (26,967)
--------- ---------
Net cash used by investing activities (113,959) (26,967)
Cash flows from financing activities:
Proceeds from issuance of common and preferred stock 1,574 73,977
Payments on line of credit borrowings -- (725)
Proceeds from notes payable 400,000 5,600
Principal payments on capital lease obligations (336) (317)
--------- ---------
Net cash provided by financing activities 401,238 78,535
--------- ---------
Net increase in cash and equivalents 183,712 41,952
Cash and equivalents at beginning of period 95,019 10,956
--------- ---------
Cash and equivalents at end of period $ 278,731 $ 52,908
========= =========
Supplemental cash flow information and noncash activities:
Warrants issued for bridge loan and capital lease $ -- $ 1,911
========= =========
Income taxes paid $ 1 $ 4
========= =========
Interest paid $ 7,995 $ 986
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
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NORTHPOINT COMMUNICATIONS GROUP, INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 Group, Inc. and its wholly-owned subsidiary NorthPoint
Communications, Inc., together with its wholly-owned subsidiary NorthPoint
Communications of Virginia, Inc. Effective March 22, 1999, NorthPoint
Communications, Inc. consummated a reorganization pursuant to which it became a
wholly-owned subsidiary of NorthPoint Communications Group, Inc., a newly
created holding company. The reorganization was effected by a merger of
NorthPoint Communications, Inc., with and into NorthPoint Merger Sub, Inc., a
wholly-owned subsidiary of NorthPoint Communications Group, Inc., with
NorthPoint Communications, Inc., as the surviving corporation of such merger. As
a result of the reorganization, the stockholders of NorthPoint Communications,
Inc. immediately before the reorganization became the only stockholders of
NorthPoint Communications Group, Inc. immediately after the reorganization. All
material intercompany accounts and transactions have been eliminated.
The accompanying unaudited condensed consolidated financial statements
reflect all adjustments which, in the opinion of management, are necessary for a
fair presentation of the results of operations for the period shown. The
results of operations for such periods are not necessarily indicative of the
results expected for the full fiscal year or for any future period.
All financial statements have been restated to give retroactive effect for
all periods to a common stock split of 2.0178 for 1 effective August 16, 1997, a
3 for 2 common and preferred stock split effective April 9, 1999 and a 3 for 2
common and preferred stock split effective April 16, 1999.
2. Summary of Significant Accounting Policies
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.
The Company sells its services on a wholesale basis to NSPs. For the three
months ended March 31, 2000 and the year ended December 31, 1999, two NSP
customers accounted for 34% and 32% of revenue, respectively.
The Company is dependent upon a small number of major suppliers and service
providers.
6
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NORTHPOINT COMMUNICATIONS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
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.
A portion of the Company's cash deposits is restricted since it supports
letters of credit that the Company has provided to secure office space. The
balance of restricted cash at March 31, 2000 and December 31, 1999 was
$4,060,400 and $4,365,400, respectively.
Short-term and long-term investments
Short-term and long-term investments are accounted for in accordance with
Statement of Financial Accounting Standards No. 115 Accounting for Certain
Investments in Debt and Equity Securities. This statement requires that
securities be classified as "held to maturity," "available-for-sale" or
"trading," and the securities in each classification be accounted for at
either amortized cost or fair market value, depending upon their classification.
The Company classifies its investments as held-to-maturity and available-for-
sale. Held-to-maturity securities are reported at amortized cost. Available-for-
sale securities are carried at fair value, with the unrealized gains and losses,
net of tax, reported as other comprehensive income, a separate component of
stockholders' equity. At the time of sale, any gains or losses will be
recognized as a component of operating results. The Company recorded other
comprehensive income of $(78,500) as of March 31, 2000 related to the net
unrealized losses of certain available-for-sale investments.
Inventories
Inventories consist of communications equipment that will be installed at
subscriber locations. Inventories are accounted for using the first-in first-our
method at the lower of cost or market.
Property and equipment
Property and equipment, including property and equipment under capital
leases, are recorded at cost and are 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 in which they are realized.
7
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NORTHPOINT COMMUNICATIONS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
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 installation services are recognized when the installation is completed.
Earnings (loss) per share
The Company computes net loss per share pursuant to Statement of Financial
Accounting Standards 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.
See Condensed Consolidated Statements of Operations for computed amounts.
The dilutive effect of options and warrants has not been considered as
their effect would be antidilutive for all periods presented.
Recently issued accounting pronouncements
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements. SAB 101 provides guidance for revenue recognition under certain
circumstances. The Company is currently evaluating the impact of SAB 101 on its
financial statements and related disclosures.
3. 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.
The Company together with, in some instances, some of its directors and
officers, may from time to time be the subject of claims or named as a defendant
or co-defendant in various legal actions involving breach of contract and
various other claims incident to the conduct of its businesses. At this time,
management does not expect the Company to suffer any material liability by
reason of such actions, nor does it expect that such actions will have a
material effect on the Company's liquidity or operating results.
4. Note Offering
On February 3, 2000, the Company issued senior notes in the aggregate
principal amount of $400,000,000. The net proceeds from the issuance of the
notes was approximately $387,500,000. The notes mature on February 15, 2010 and
bear interest at a rate of twelve and seven-eighths percent per year. The
interest is payable semi-annually on each February 15 and August 15, beginning
on August 15, 2000.
8
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NORTHPOINT COMMUNICATIONS GROUP, INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Common Stock
In January 2000, a warrant holder exercised warrants held to purchase
2,925,000 shares of common stock. In connection with the warrant agreement, the
agreement was executed net of exercise. This resulted in the issuance of
2,662,233 shares of common stock.
From January 1, 2000 to March 31, 2000, the Company granted to employees
options to purchase an aggregate of 923,500 shares of common stock at an
exercise price of $22.56 to $31.00 per share, which was the fair market value of
the stock at the time of the grants.
In March 2000, 2,466,724 shares of Class B common stock automatically
converted into 2,466,724 shares of common stock in accordance with the terms of
the Company's certificate of incorporation.
6. Stock Warrants
Contingent Warrants
The Company has issued warrants to purchase up to 212,568 shares of its
common stock at a price of $1.5689 per share to one of its shareholders, which
are exercisable upon the achievement of certain milestones by the holder of the
warrants. The value of the warrants will be determined using a Black-Scholes
model and will be recorded once the warrants become exercisable.
7. Subsequent Events
Strategic Joint Ventures
During the quarter ended March 31, 2000, NorthPoint announced its intention
to form two international joint ventures. The first is a 50-50 joint venture
with a Canadian competitive service provider to deliver wholesale DSL-based
broadband services to businesses throughout Canada. Service is expected to begin
in the third quarter of 2000. The second is a 50-50 joint venture with an
alternative broadband local access network operator in the Benelux region and
the northwest Rhine region of Germany. This joint venture plans to eventually
deliver DSL services accross Europe as those markets open. The Company has
committed to contribute a total of approximately $75,000,000 to these ventures
by the end of the first quarter of 2001.
Common Stock
From April 1, 2000 to May 10, 2000, The Company granted to certain
employees options to purchase an aggregate of 1,500,000 shares of common stock
at an exercise price of $10.00 to $12.13 per share. Under the provisions of APB
No. 25, deferred compensation of approximately $1,312,500 will be recognized in
connection with these grants and amortized as deferred stock compensation
expense over the vesting period of the options.
9
<PAGE>
ITEM 2. 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 our financial
statements and related notes included elsewhere in this report. In the
discussion below, we refer to the period from inception to December 31, 1997 as
"1997".
Certain statements set forth below constitute "forward-looking statements."
Such forward-looking statements involve certain risks and uncertainties
including, but not limited to, those discussed herein under "Risk Factors" that
may cause actual results to differ materially from those expressed or implied in
any forward-looking statement. Investors and prospective investors are
cautioned not to place undue reliance on such forward-looking statements. We
disclaim any obligation to update the forward-looking statements contained
herein to reflect future events or developments. See "Forward-Looking
Statements."
Overview
We are a national provider of high speed, local data network services. Our
networks use digital subscriber line, or DSL, technology to enable data
transport over telephone company copper lines 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. Our 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 have recently begun to offer, on a limited basis,
network and data transport services for residential end users as well.
We are currently providing services in 37 metropolitan areas, spanning 81
metropolitan statistical areas, in the United States and intend to offer service
in a total of over 60 metropolitan areas, spanning 110 metropolitan statistical
areas by the end of 2000. 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 targeted markets. As of March 31, 2000, we
had secured space in over 1,799 central offices and were providing services from
1,260 of those central offices. We intend to expand the coverage of our networks
in these markets over time by installing equipment in additional central
offices.
We are currently providing or have entered into agreements to provide our
services to more than 200 network service providers. As of March 31, 2000, we
had connected over 41,300 of their end users to our networks. Upon completion of
our planned expansion, our networks will be able to reach approximately 5.5
million businesses and 45 million households, including more than 80% of the
small- and medium-sized businesses in our 60 markets.
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 and hiring management and other key personnel;
. working on the design and development of our network architecture and
operations support systems;
. acquiring equipment and facilities;
. negotiating interconnection agreements; and
. selling and marketing our services to network service providers.
10
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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 36 additional markets. We intend
to offer our services in 23 additional metropolitan areas by year-end 2000.
Deployment of our networks will require significant upfront capital
expenditures. We were offering service from 1,260 operational central offices at
the end of the first quarter of 2000 and plan to offer service from an
additional 440 central offices by the year end 2000 to allow us to achieve
blanket coverage in our 37 markets as well as 23 additional targeted markets.
The principal capital expenditures we incur when we enter any market
include:
. the establishment of a metropolitan node-a facility at which we
aggregate and disseminate data traffic 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;
. the purchase and installation of the network management and network
test equipment in those cages; and
. the capitalized cost of the installation of such equipment.
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 digital subscriber line access multiplexer
and network test equipment, and line cards for our electronic switches in our
metropolitan node. 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 varies from market to market, and the time when we
will achieve positive EBITDA, if at all, will depend on factors such as:
. the size of the addressable market;
. the level of upfront sales and marketing expenses;
. the number and sequencing of central offices built out;
. the cost of the necessary infrastructure;
. the timing of market entry;
. the commercial acceptance of our services; and
. the rate at which we can provision lines.
EBITDA is a measure of financial performance commonly used in the
telecommunications industry. It is defined as earnings before net interest,
taxes, amortization of deferred stock compensation, depreciation and
amortization. Other companies' definition of EBITDA may differ from ours. 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.
Factors Affecting Future Operations
Revenues. We derive our revenues from monthly recurring and nonrecurring
charges to internet service providers, long-distance and local telephone
companies and data service providers, whom we call network service
11
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providers. Monthly recurring revenues consist of end user line fees, based upon
the number of installed lines, for the network service providers' end users
connected to our networks and interconnection fees for each connection to our
metropolitan node in each market. Nonrecurring revenues include charges for the
installation and activation of new end users and in some cases, for end-user
modems or other electronic equipment. Prior to the quarter ended September 30,
1999, we had sold only minimal amounts of end-user modems or other electronic
equipment. During the three most recent quarters, we began to sell an increasing
amount of such equipment to support the needs of our growing network service
provider partner base.
We seek to price our services competitively in relation to those of the
traditional telephone companies and other competitive telecommunications
companies in each market. Current standard end user line prices that we charge
to our network service providers for our business class services generally range
from $75 per month for 144 kilobits per second service to $250 per month for 1.5
megabits per second service, before volume discounts. Pricing for residential
class service is generally lower. 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
generally minimal.
We accelerated our deployment during the course of 1999 into additional
geographic markets, successfully enabling us to sign more network service
provider partners than previously planned. We plan to continue our strategy of
rapidly entering new markets to secure key channel partnerships and create
awareness of the NorthPoint brand. We believe this strategy leaves us well-
positioned to capitalize on the demand for our products. In view of this rapid
deployment, we need to continue to enhance our abilities to develop the markets
where we offer service, including enhanced training of our employees as well as
our existing and new network service provider partners. Continuing future
acceleration of line installations is dependent upon our ability to upgrade our
provisioning processes and interfaces, the timing and effectiveness of which
could affect future quarterly results.
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 traditional telephone
companies, competitive telecommunications companies and other providers. As our
customer and end user base grows, we expect the largest element of network
expenses to be traditional telephone company charges for leased copper lines,
which have historically been $3 to $40 per line per month, depending on the
identity of the traditional telephone company 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. On occasion, we
will participate in various sales promotions with our customers by advancing
market development funds to assist in their marketing efforts, particularly for
new markets. These costs are deferred and amortized over the estimated duration
of the promotion's effect in those markets. Additionally, we incur other costs
associated with administrative overhead, office leases and bad debt. In general,
we reserve for bad debt expense based upon our experience and estimates of
collectability. Because our history is limited it is possible that, on occasion,
we may have to increase our bad debt reserves in excess of our past experience.
The timing of these increases if any, could affect future quarterly results. 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 revenues 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.
12
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Amortization of Deferred Stock Compensation. Stock compensation arises as
a result of the granting of stock options to employees with exercise prices
below the fair values at the date of grant. The deferred compensation is being
amortized over the vesting period of the associated 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 collocation space 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. State taxes were limited
to nominal amounts. 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
As a result of the development and rapid growth of the Company's business
during the periods presented, the period-to-period comparisons of the Company's
results of operations are not necessarily meaningful and should not be relied
upon as an indication of future performance.
Revenues. We recognized $1,283,000 in revenues for the quarter ended
March 31, 1999, 75% of which consisted of recurring revenues and did not include
sales of end user modems or other electronic equipment. Revenues for the quarter
ended March 31, 2000 were approximately $19,971,000, 49% of which consisted of
recurring revenues. The increase in revenues is due to the expansion of our
installed end user base that has occurred over the past year. In addition,
nonrecurring revenues as a proportion of total revenues increased from the
quarter ended March 31, 1999 as we were selling end-user modems and other
electronic equipment during the quarter to support the needs of our growing
network service provider partner base. We expect that non-recurring revenues as
a percentage of total revenues will decrease over time as we add end users to
our networks.
Network Expenses. Network expenses were approximately $3,932,000 for the
quarter ended March 31, 1999 and $33,538,000 for the quarter ended March 31,
2000. 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 network service providers, end
user line installation costs, costs of end user modems, and costs charged to us
by the traditional telephone companies. The increase in network expenses
reflects the growth in our network as we expand into new markets and connect new
end users.
Selling, Marketing, General and Administrative Expenses. Selling,
marketing, general and administrative expenses were approximately $14,379,000
for the quarter ended March 31, 1999 and $48,446,000 for the quarter ended March
31, 2000. 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. As the staffing levels
and operations of the Company have expanded over the past year, so have these
operating expenses to support such growth.
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Amortization of Deferred Stock Compensation. Amortization of deferred
stock compensation was $1,592,000 for the quarter ended March 31, 1999 and
$1,211,000 for the quarter ended March 31, 2000. This reduction in deferred
stock compensation expense is due to the attrition of those employees to whom
such options were granted. The unamortized balance of $11,195,000 at March 31,
2000 will be amortized over the remaining vesting period of each grant.
Depreciation and Amortization. Depreciation and amortization expenses were
approximately $1,387,000 for the quarter ended March 31, 1999 and $10,743,000
for the quarter ended March 31, 2000. Such expenses consisted primarily of
depreciation of network equipment, information systems, office equipment,
furniture and fixtures and amortization of leasehold improvements. The increase
in depreciation and amortization is primarily due to the additional property and
equipment that has been acquired and placed into service as we continue to build
out our networks.
Interest Income and Expense. Interest income for the quarter ended
March 31, 1999 was $238,000. This interest income was earned primarily from the
proceeds raised in the Series C preferred stock financing in February 1999 and
the cash on hand from a line of credit borrowing on a bridge loan closed in July
1998. The interest income for the quarter ended March 31, 2000 was $5,038,000
and was earned primarily from the proceeds raised in the sale of our senior
notes in February 2000.
Interest expense for the quarter ended March 31, 1999 was approximately
$3,583,000. Interest expense for the quarter ended March 31, 1999 includes
amortization of $1,419,000 related to debt discount recorded in conjunction with
the issuance of bridge loan warrants and equipment lease warrants. The remainder
of the interest expense primarily represents the interest associated with the
bridge loan. Interest expense for the quarter ended March 31, 2000 was
$11,010,000 and primarily represents the interest associated with our senior
notes sold in February 2000 and also our senior credit facilities, which we
closed in December 1999.
Liquidity and Capital Resources
Our operations have required substantial capital investment for the
procurement, design and construction of our central office colocation space
improvements and cages, the purchase of telecommunications equipment and the
design and development of our networks. Capital expenditures were approximately
$26,967,000 for the three months ended March 31, 1999 and $95,202,000 for the
three months ended March 31, 2000.
Although we have no material commitments for capital expenditures during
2000, we plan to make total capital expenditures in 2000 estimated at
approximately $250,000,000 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 customers. We will also
incur capital expenditures for building a metropolitan node in each market and
for expanding our network control center in the San Francisco Bay Area.
As of March 31, 2000, we had an accumulated operating deficit of
$293,924,000 and cash, cash equivalents and short-term investments of
$412,113,000.
Net cash used in operating activities was $9,616,000 for the three months
ended March 31, 1999 and $103,567,000 for the three months ended March 31, 2000.
The net cash used in operations for the three months ended March 31, 1999 was
primarily due to net losses, offset in part by increases in accrued expenses and
accounts payable. The net cash used in operations for the three months ended
March 31, 2000 was primarily due to net losses and an increase in prepaid
expenses from the fees paid in connection with the sale of our senior notes in
February 2000. The net cash used in investing activities was $26,967,000 for
the three months ended March 31, 1999 and $113,959 for the three months ended
March 31, 2000. Investing activities were principally acquisitions of property
and equipment in both years. Net cash provided by financing activities was
approximately $78,535,000 for the quarter ended March 31, 1999, of which
$73,977,000 related to the issuance of common and preferred stock and $5,600,000
related to borrowings, offset in part by the repayment of certain capital lease
obligations and line of credit borrowings totaling approximately $1,042,000.
Net cash provided by financing activities was approximately $401,238,000 for the
three
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months ended March 31, 2000 and relates to the proceeds from the sale of our
senior notes, offset by the principal payments on our capital lease obligations
totaling approximately $336,000.
On February 3, 2000, we issued senior notes in the aggregate principal
amount of $400.0 million. These notes bear interest at a fixed annual rate of 12
7/8% to be paid in cash every six months and mature on February 15, 2010. Net
proceeds from these notes were approximately $387.5 million.
On December 9, 1999 we entered into a secured credit facility with a
syndicate of lenders. The secured credit facility consists of the following:
. Revolving credit facility in an amount up to $55,000,000. The
revolving credit facility is used for general corporate purposes. As
of the date of this report, we have not borrowed any amount under the
revolving credit facility.
. Delayed draw term loan facility in the amount of $110,000,000. As of
the date of this report, we have not borrowed any amount of the
delayed draw term loan facility but we are required to borrow the
entire facility on or before December 9, 2000.
. Term loan facility in the amount of $85,000,000. We borrowed the
entire term loan facility amount on December 9, 1999.
The secured credit facility also provides for the issuance of letters of
credit on our behalf by the lenders.
Borrowings under the secured credit facility are collateralized by a first
priority lien against substantially all of our assets. Our obligations under the
secured credit facility are guaranteed by all of our subsidiaries and
collateralized by a first priority lien on the assets of those subsidiaries. We
further pledged to the lenders under the secured credit facility all of the
capital stock of NorthPoint Communications, Inc. held by us. The lenders under
the secured credit facility have agreed that the liens collateralizing the
secured credit facility may also collateralize an additional $50,000,000 of
additional borrowings in the event the secured credit facility is extended, but
the lenders have no obligation to provide such additional financing.
Loans under the facilities bear interest at floating rates based on the
prime rate or the London Offered Interbank Rate (LIBOR) plus, in each case, an
additional interest rate margin.
In March and April 1999, we issued and sold an aggregate of 3,968,174
shares of Series D-1 preferred stock with total proceeds of approximately
$38,800,000. Purchasers of our Series D-1 preferred stock included ICG Services,
Inc. (an affiliate of ICG Communications, Inc.), Excite@Home, Verio Inc., Cable
& Wireless USA, Inc., Concentric Network Corporation, ALC Communications
Corporation (an affiliate of Global Crossing Holdings Limited), Network Plus
Corporation and Netopia, Inc.
In May 1999, we sold 17,250,000 shares of our common stock at $24 per share
in our initial public offering. Net of underwriting discounts and commissions,
the proceeds to us were $388,500,000. Microsoft Corporation and Tandy
Corporation purchased $30,000,000 and $20,000,000, respectively, of our stock in
this offering.
We believe that our current capital resources will be sufficient for the
funding and working capital requirements needed for the deployment of our
networks in our 60 targeted markets. However, we may decide to seek additional
capital depending upon 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.
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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.
Year 2000 Compliance
We believe that our computer systems and software are year 2000 compliant.
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 requested assurances regarding
year 2000 compliance from our equipment and software vendors and the traditional
telephone companies. We have also learned that the traditional telephone
companies have informed the Federal Communications Commission that they are year
2000 compliant. We requested that they provide assurances of their year 2000
compliance directly to us. Furthermore, we have not experienced any year 2000
problems and we have not been informed of any material year 2000 problems by our
customers and vendors. Our aggregate historical costs for year 2000 analysis,
planning and remediation have not been material to date and, based on the tests
we have performed on our computer systems and software and assurances received
from our vendors and the traditional telephone companies, we do not expect to
incur material costs to resolve year 2000 issues in the future.
Recently Issued Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements. SAB 101 provides guidance for revenue recognition under certain
circumstances. The Company is currently evaluating the impact of SAB 101 on its
financial statements and related disclosures.
Forward Looking Statements
The statements contained in this report which are not historical facts may be
deemed to contain forward-looking statements, including but not limited to
deployment of the company's network in new and existing regions and the timing
and breadth of coverage in each region. Actual results may differ materially
from those anticipated in any forward-looking statements as a result of certain
risks and uncertainties, including, without limitation, the company's dependence
on strategic third parties to market and resell its services, intense
competition for the company's service offerings, dependence on growth in demand
for DSL-based services, ability to raise additional capital and other risks and
uncertainties detailed herein and in our Registration Statement on Form S-1, as
amended (File No. 333-73065). All written and oral forward-looking statements
made in connection with this report on Form 10-Q which are attributable to us or
persons acting on our behalf are expressly qualified in their entirety by the
"Risk Factors" and other cautionary statements included in our Registration
Statement on Form S-1, as amended (File No. 333-73065). We disclaim any
obligation to update information contained in any forward-looking statement.
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Risk Factors
In addition to the other information contained herein, you should carefully
consider the following risk factors in evaluating our company.
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 company.
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 information technology
systems;
. obtain central office space and suitable copper wire loops;
. expand our customer base;
. raise additional capital;
. maintain adequate control of our expenses;
. attract and retain qualified personnel;
. enter into and implement interconnection agreements with traditional
telephone companies, some of which are our competitors or potential
competitors;
. expand the geographic coverage of our network;
. obtain governmental authorizations to operate as a competitive
telecommunications company 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, 1999, we had operating losses of approximately $168,426,000, net
losses of $183,698,000, and negative cash flow from operating and investing
activities of $439,571,000. For the quarter ended March 31, 2000, we had
operating losses of approximately $73,967,000, net losses of $79,939,000, and
negative cash flow from operating and investing activities of $217,526,000. We
cannot assure our investors 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.
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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.
Our Failure to Achieve or Sustain Market Acceptance at Desired Pricing Levels
Could Impair Our Ability to Achieve Profitability or Positive Cash Flow
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 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 traditional telephone companies to provide
and construct the required central office facilities;
. the timing and willingness of traditional telephone companies 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 priced and higher priced 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.
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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.
A Limited Number of Customers Account for a High Percentage of Our Revenues and
the Loss of a Significant Customer Could Harm Our Business
We currently provide or have agreements to provide data transport solutions to
more than 200 network service providers. For the year ended December 31, 1999,
our two largest customers accounted for 32% of our revenues. For the quarter
ended March 31, 2000, our two largest customers accounted for 34% of our
revenues. We anticipate that, as we expand our business, we will continue to
rely upon a limited number of customers for a high percentage of our revenue and
end-user lines. 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 strengthen their commercial relationships with
our competitors, our business would be materially adversely affected.
We May Not Be Able to Continue to Grow Our Business If We Do Not Obtain
Significant Additional Funds
We believe our current capital resources will be sufficient for the funding
and working capital requirements needed for the deployment of our networks in
our 60 targeted markets. If we decide to accelerate the timing of the buildout
of our networks or target additional markets, we may need significant additional
funds. We expect that the actual amount and timing of our future capital
requirements, if any, will depend upon the demand for our services and
regulatory, technological and competitive developments, including additional
market developments and new opportunities in our industry. These future capital
requirements may be substantial. In addition, we may seek additional financing
if:
. 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. If we are unable to obtain adequate funds on
acceptable terms, our ability to deploy and operate our networks, fund our
expansion or respond to competitive pressures could be significantly impaired.
Such limitation could have a material adverse effect on our business, prospects,
financial condition or results of operations.
Our Business Activities and Our Ability to Raise Additional Funds Are Limited by
Covenants Contained in Our Financing Agreements and the Indenture
Our debt agreements, including our secured credit facility, the indenture
governing our senior notes 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 debt could be declared immediately due and payable.
We may be unable to make such required payments, or to raise sufficient funds
from other sources.
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In addition, the terms of proposed new indebtedness or other funding may not
be permitted by the terms of our current financing agreements, including our
secured credit facility and the indenture. 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.
We Need to Make Significant Capital Expenditures, and the Amounts, Timing and
Returns are Uncertain
In 2000, we will have to make significant capital expenditures, estimated at
approximately $250,000,000, to develop our business and deploy our services and
systems. We may also need to make additional capital expenditures in connection
with the acquisition of other companies. In addition, 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.
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Our Success in Attracting and Retaining Customers Significantly Depends on Our
Ability to Obtain Central Office Space from Traditional Telephone Companies
We believe the growth and success of our business will depend upon securing
physical central office space for our equipment in the central offices of
traditional telephone companies in our target markets. We have experienced
initial rejections of our applications to obtain space in some central offices.
We believe we will continue to receive rejections of requested physical central
office space as we expand our existing and planned networks. Although to date a
majority of our applications to obtain physical central office space 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 space in desired central offices. Nor can we predict the extent
of these rejections or their impact on our ability to provide service in our
target markets. The rejection of our applications for central office 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 central office space on a timely basis
or at all. In some cases, although physical central office space is available,
traditional telephone companies have claimed that they must refurbish space to
make it suitable for our equipment--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
central office space prohibitively expensive. We expect physical central office
space to become increasingly scarce due to increasing demand from a growing
number of competitive telecommunications companies.
Even when space is available, we may face delays ranging from four months to
more than a year after we place an order before space for our equipment is made
available. If our applications for physical central office space are rejected,
or the costs or delays associated with obtaining central office space 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 central office
space in a timely manner could have a material adverse effect on our ability to
attract and retain customers.
Any disputes with traditional telephone companies over the types of equipment
we seek to install in the central office 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.
Our Success Depends on Interconnection Agreements With Traditional Telephone
Companies in Each of Our Markets
The success of our strategy depends on our ability to enter into and renew
interconnection agreements with traditional telephone companies 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 Copper Lines Are Not Available or Cost
Us More Than We Expect
We significantly depend on the quality of the copper lines and the traditional
telephone companies' 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
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traditional telephone companies 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.
Under federal law, traditional telephone companies have an obligation to
negotiate with us in good faith to enter into interconnection agreements,
including agreements on the price at which we can obtain suitable lines from
these telephone companies. If no agreement can be reached, either side may
petition the applicable state commission to arbitrate remaining disagreements.
These arbitration proceedings can last up to nine months. Moreover, the state
commission must approve any interconnection agreement resulting from negotiation
or arbitration, and any party may appeal an adverse decision by the state
commission to federal district court. The potential cost in resources and delay
from this process could harm our ability to compete in certain markets, and
there is no guarantee that a state commission would resolve disputes, including
pricing disputes, regarding our access to suitable lines in our favor. Moreover,
the FCC rules governing pricing standards for access to the networks of the
traditional telephone companies are currently being challenged in federal court.
If the courts overturn the FCC's pricing rules, the FCC may adopt a new pricing
methodology that would require us to pay a higher price to traditional telephone
companies for access to suitable lines. This could have a detrimental effect on
our business.
We have not yet established a history of ordering and obtaining the
provisioning and repair of very large volumes of lines from any traditional
telephone company. We also depend on cooperation from traditional telephone
companies for repair of transmission facilities. The traditional telephone
companies in turn rely significantly on unionized labor. Labor-related issues
and actions on the part of the traditional telephone companies have in the past,
and may in the future, adversely affect traditional telephone companies'
provision of services and network components that we order.
Our dependence on the traditional telephone companies 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 otherwise
have a material adverse effect on our business, prospects, financial condition
and results of operations.
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 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. If our plans for the development and implementation of our
operations support systems do not proceed as expected, or if these systems, once
implemented, fail to perform as expected, our business prospects, financial
condition and results of operations could be materially adversely affected.
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
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.
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We May Be Unable to Expand Our Network Services Effectively and Provide High
Performance to a Substantial Number of End Users
Due to the limited deployment of our services, the ability of our DSL network
to connect and manage a substantial number of end users at high transmission
speeds is still unknown. While peak digital data transmission speeds across our
DSL network to and from the central office and the end user can exceed 1.5
megabits per second, 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 gauge of the copper lines; 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 traditional telephone companies 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.
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 comparable experience. We depend
upon our executive officers because we believe there are few managerial
personnel with qualifications to swiftly implement a business plan integrating
DSL technology with the existing telephone infrastructure. Any of our executive
officers 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 traditional and new telephone and telecommunications companies, including
national long distance carriers, cable modem service providers, Internet service
providers, on-line service providers, and wireless and satellite data service
providers.
23
<PAGE>
Other Competitive Telecommunications Companies, Some With Greater Financial
Resources, Compete in the Same Markets for the Same Customers. Other
competitive telecommunications companies have entered and may continue to enter
the market and offer high speed data services using a business strategy similar
to ours. Some competitors, including those focusing on data transport such as
Rhythms NetConnections Inc., HarvardNet Inc., @Link Networks L.L.C., New Edge
Networks, Covad Communications Group, Inc., BlueStar Communications, JATO,
Telocity, Vitts Network, DSL.net and Network Access Solutions Corporation, have
begun to offer DSL-based access services, and others are likely to do so in the
future. Finally, traditional voice-based telephone companies such as BTI
Telecom, Hyperion, MCG, McLeod Communications, Allegiance and Network Plus, are
entering the DSL market. Certain of our customers 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 competitive
local exchange carrier, or competitive telecommunications company, the right to
negotiate interconnection agreements with traditional telephone companies, or
incumbent local exchange carriers. The Telecommunications Act also allows
competitive telecommunications companies to enter into interconnection
agreements which are identical in all respects to ours. In addition, some
competitive telecommunications companies have extensive fiber networks in many
metropolitan areas primarily providing high speed digital and voice circuits to
large corporations, and have interconnection agreements with traditional
telephone companies pursuant to which they have acquired space in traditional
telephone companies' central offices in many of our markets. As a result, our
customers may contract with other competitive telecommunications companies,
which may decrease our customers' demand for our services.
Traditional Telephone Companies With Greater Resources Than Ours May Directly
Compete in Our Markets. The traditional telephone companies 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 traditional telephone companies have established or are establishing their
own Internet service provider businesses, and all of the largest traditional
telephone companies that are present in our target markets are conducting market
trials of or have commenced offering DSL-based access services. For example,
Bell Atlantic, BellSouth, Cincinnati Bell, Pacific Bell and Southwestern Bell
are offering commercial services in some territories in which we offer services,
U S WEST is offering commercial DSL services and Ameritech has announced
commercial DSL services in some areas of Michigan and Illinois. We recognize
that the traditional telephone companies 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 space in traditional telephone companies' central
offices. In addition, the FCC is considering establishing requirements for
separate subsidiaries through which the traditional telephone companies could
provide DSL service on a largely deregulated basis. As a result, we expect
traditional telephone companies 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 WorldCom, Inc., AT&T Corp. and Sprint
Corporation, are expanding their capabilities to support high speed, end-to-end
data networking services. They also have interconnection agreements with many of
the traditional telephone companies and a number of spaces in traditional
telephone companies' central offices from which they could begin to offer
competitive DSL services. The newer national long distance carriers, such as
Level 3 Communications, Inc., The Williams Companies, Inc. and Qwest
Communications International, Inc. are building and managing high speed fiber-
based national data 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. Sprint has already launched services in Las Vegas and Charlotte.
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 At Home Corporation 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.
24
<PAGE>
Internet Service Providers, Our Targeted Customers, May Begin to Provide DSL
Services Directly. Internet service providers, such as Verio Inc., GTE
Internetworking, UUNET (a subsidiary of MCI WorldCom, Inc.), Sprint, Concentric
Network Corporation, MindSpring Enterprises, Inc. and PSINet, Inc., provide
Internet access to residential and business customers, generally using the
existing telephone system. Some regional Internet service providers, such as
HarvardNet Inc., BlueStar Communications, New Edge Networks, @Link Networks
L.L.C., 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 certification as competitive
telecommunications companies 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 Network, 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 that it will purchase DSL services from Bell
Atlantic and SBC Communications. 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 systems, local
multipoint distribution systems, wireless communication service and point-to-
point microwave systems. The FCC recently adopted 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., NEXTLINK and WinStar Communications, Inc. hold point-to-
point and/or point-to-multipoint 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 Communications, Inc. (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
25
<PAGE>
consolidation 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 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, prospects, financial condition
and results of operations.
As a competitive telecommunications company, we are subject to FCC regulation
for our contractual, or interconnection, arrangements with the traditional
telephone companies, or incumbent local exchange carriers, 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 competitive telecommunications company may use
portions of a traditional telephone company'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 competitive telecommunications companies would have
to pay traditional telephone companies for use of the traditional telephone
companies' 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 result in our
having to pay a higher price to traditional telephone companies if we were to
use a portion of their networks in providing our services, and this could have a
detrimental effect on our business.
In response to the Supreme Court's decision vacating certain portions of the
FCC's rules implementing provisions of the Telecommunications Act, the FCC
revisited the requirements imposed upon traditional telephone companies that
they make available certain network elements for use by competitive telephone
companies such as NorthPoint. In its decision in September 1999, the FCC
reaffirmed and strengthened the requirements imposed upon traditional telephone
companies to make available unbundled network elements and affirmed the
availability of those network elements utilized by NorthPoint in the provision
of its services. The FCC's decision is subject to review by the courts and
further consideration by the FCC in subsequent proceedings. Any reversal or
material change in the unbundling rules with regard to those elements used by
NorthPoint would have a material adverse effect on NorthPoint's ability to
provide its services.
Recently, various traditional telephone companies have requested the FCC to
grant them regulatory relief in the provision of data transmission services,
including DSL services, which would allow the traditional telephone companies to
compete more directly with DSL providers such as NorthPoint. In response, the
FCC initiated a comprehensive proceeding to review Advanced Services, including
DSL issues. That proceeding has resulted in a number of rulemakings and orders
that enhance the ability of competitive DSL companies like NorthPoint to, among
other things, access DSL-capable unbundled copper loops, access and utilize
various forms of central office collocation space, provide a variety of DSL
services to end-users by setting open rules for spectrum compatibility, and
access "shared-lines" by requiring the traditional telephone companies to
provide access to the high-frequency portion of existing voice service lines to
DSL competitive companies like NorthPoint for the provision of high speed DSL
services. The decision with respect to shared-lines is not final, is subject to
review by the courts and the FCC, and is subject to implementation on a state-
by-state basis. We anticipate the traditional telephone companies will require
six to nine months to implement the requirements (including technical trials) of
the FCC decision. The benefits of this decision may be diluted or delayed if the
implementation processes are protracted or frustrated through legal challenges,
arbitrations, or other actions in any given state.
26
<PAGE>
Our Debt Creates Financial and Operating Risk That Could Limit the Growth of Our
Business
As of March 31, 2000, we had approximately $487,940,000 of indebtedness and
$230,498,000 of stockholders' equity.
The degree to which we are leveraged could have important consequences to
holders of our common stock, including, but not limited to, the following:
. our ability to obtain additional financing or refinancing in the future for
capital expenditures, repayment of outstanding indebtedness, working
capital, acquisitions, general corporate or other purposes may be
materially limited or impaired;
. our cash flow, if any, may be unavailable for building our business, as a
substantial portion of our cash flow may be dedicated to the payment of
principal and interest on our indebtedness or other indebtedness that we
may incur in the future, and our failure to generate sufficient cash flow
to service such indebtedness could result in a default;
. our debt agreements will contain restrictions and financial covenants
which, if we fail to meet them, could result in our indebtedness being
declared due prematurely, at a time when we could not make the required
payments;
. our leverage may make us more vulnerable to economic downturns, may limit
our ability to withstand competitive pressures and may reduce our
flexibility in responding to changing business and economic conditions; and
. we may from time to time be more highly leveraged than many of our
competitors, which may place us at a competitive disadvantage.
We Rely on Our Intellectual Property Which We May Be Unable to Protect, or We
May Be Found to Infringe the Rights of Others
Our success depends in part on our ability to protect our proprietary
intellectual property. In addition, we may be sued over intellectual property
rights. These lawsuits, or our inability to protect our intellectual property
rights, could have a material adverse effect on our business, prospects,
financial condition and results of operations.
In April 1999, we received a letter from one of our competitors, Covad
Communications Group, Inc., indicating that it had been informed of allowance of
a United States patent application. According to Covad's letter, their patent
application related to digital subscriber loop implementations supporting (a) a
bandwidth of 128 kbps or 144 kbps combined with (b) a bandwidth greater than 128
or 144 kbps. The patent described in Covad's letter has now issued. We have
received a copy of the patent. We have not yet evaluated fully the validity or
relevance of the patent to our business. If the patent is valid, and if we
infringe this patent, we could be required to obtain a license under the patent.
While Covad has indicated that we may be interested in obtaining a license from
them at the appropriate time, we cannot be certain that such a license, if
needed, would be available on commercially acceptable terms.
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 a traditional telephone
company or other service provider 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.
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<PAGE>
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.
Our Business Could Suffer from a Reduction or Interruption from Our Equipment
Suppliers or Other Third Parties on Whom We Rely for 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 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 a traditional telephone company
copper plant. Citing this potential interference, some traditional telephone
companies have imposed restrictions on the use of 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. If traditional telephone companies were to
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
The trading price of our common stock has been and is likely to continue to be
highly volatile. Our stock price is likely to be volatile and may fluctuate
substantially due to factors such as:
. our historical and anticipated quarterly and annual operating results;
28
<PAGE>
. 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 or the Perception of Future Sales Could Depress Our Stock
Price
Sales of a large number of shares of common stock in the market or the
perception that sales may occur could cause the market price of our common stock
to drop. As of March 31, 2000, we had 131,201,511 shares of common stock
outstanding. Of these common shares, approximately 110,831,988 shares are freely
tradeable, except for any such shares held at any time by an "affiliate" of
NorthPoint, as defined under Rule 144 under the Securities Act, and
approximately 17,335,615 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.
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
beneficially own approximately 50% of our common stock. 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.
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 a
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.
If Unexpected Year 2000 Issues Arise, 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, computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. Although we have not experienced any
year 2000 problems and have not been informed of any material year 2000 problems
by our customers and vendors, we cannot assure you that our systems or the
systems of other companies on whose services we depend or with whom our systems
interconnect will not experience unexpected year 2000 problems during the course
of the year. 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. This could, in turn, have a material adverse effect on our business,
prospects, financial condition and results of operations.
29
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are currently exposed to the impact of interest rate changes and changes in
market values of investments through our investment portfolio. The majority of
our debt is in the form of fixed interest rate obligations. Our principal
exposure to financial market fluctuations relates to our secured credit
facility, which is floating rate debt. We do not believe a hypothetical 10%
adverse rate change in our variable rate debt obligations would be material to
our results of operations.
We believe our market risk exposure with regard to marketable debt securities
in our investment portfolio is limited to changes in quoted market prices for
such securities. Based upon the composition of our marketable debt
securities at March 31, 2000, we do not believe a hypothetical 10% adverse
change in quoted market prices would be material to our results of operations.
30
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We are not currently involved in any pending legal proceedings that
individually, or in the aggregate, are material to us.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(d) Report of Offering of Securities and Use of Proceeds Therefrom:
In May 1999, we commenced and completed a firm commitment underwritten initial
public offering of 17,250,000 shares of our common stock, including 2,250,000
shares related to the underwriters' overallotment option, at a price of $24.00
per share. The shares were registered with the Securities and Exchange
Commission pursuant to a Registration Statement on Form S-1 (File No. 333-
73065), which was declared effective on May 5, 1999. The public offering was
underwritten by a syndicate of underwriters led by Goldman, Sachs & Co., Morgan
Stanley Dean Witter and Credit Suisse First Boston as their representatives.
After deducting underwriting discounts and commissions of $25,500,000 and
expenses of $2,000,000, we received net proceeds of $386,500,000. As of March
31, 2000, we had used all of the estimated aggregate net proceeds of
$386,500,000 from our initial public offering as follows:
<TABLE>
<S> <C>
Purchase and installation of machinery and equipment $ 259,070,000
Purchases of real estate $ 0
Acquisition of other business(es) $ 0
Repayment of indebtedness $ 0
Working capital and other purposes $ 127,430,000
Temporary Investments $ 0
--------------
Total $ 386,500,000
==============
</TABLE>
The foregoing amounts represent our best estimate of our use of proceeds for the
period indicated. The use of proceeds from the offering does not represent a
material change in the use of proceeds described in our Registration Statement
on Form S- 1, as amended (File No. 333-73065). None of the net proceeds of the
offering were paid directly or indirectly to any director or officer of
NorthPoint Communications Group, Inc., persons owning 10% or more of any class
of our equity securities or any of our affiliates.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
The following exhibits are included as part of this Report:
Exhibit
No. Description of Exhibit
- ------- ----------------------
3.1 Fourth Amended and Restated Certificate of Incorporation
of NorthPoint Communications Group, Inc.
10.15 The Amended and Restated NorthPoint Communications Group,
Inc. 1999 Stock Plan.
10.29 Amended and Restated Employment Agreement dated April 18, 2000,
between NorthPoint Communications, Inc. and Elizabeth A. Fetter.
10.34 Employment Agreement dated April 3, 2000, between NorthPoint
Communications, Inc. and Michael P. Glinsky.
10.35 Amendment No. 1 to Employment Agreement dated April 17, 2000, between
NorthPoint Communications, Inc. and Herman W. Bluestein.
10.36 Amendment No. 1 to Employment Agreement dated April 17, 2000, between
NorthPoint Communications, Inc. and Steven J. Gorosh.
10.37 Amendment No. 1 to Employment Agreement dated April 17, 2000, between
NorthPoint Communications, Inc. and Nancy J. Hemmenway.
27.1 Financial Data Schedule for the three months ended March 31, 2000.
(b) Reports on Form 8-K:
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NORTHPOINT COMMUNICATIONS GROUP, INC.
Registrant
Dated: May 15, 2000 By: /s/ ELIZABETH A. FETTER
------------------------------
Elizabeth A. Fetter
Chief Executive Officer and President
Dated: May 15, 2000 By: /s/ MICHAEL P. GLINSKY
------------------------------
Michael P. Glinsky
Executive Vice President and
Chief Financial Officer
33
<PAGE>
EXHIBIT 3.1
FOURTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NORTHPOINT COMMUNICATIONS GROUP, INC.
The undersigned, Elizabeth A. Fetter and Steven J. Gorosh, hereby certify
that:
1. They are the duly elected and acting President and Secretary,
respectively, of NorthPoint Communications Group, 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, under the name
NorthPoint Communications Holdings, Inc.
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 Group, 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
305,526,843 shares, each with a par value of $0.001 per share, of which
281,250,000 shares shall be Common Stock and 24,276,843 shares shall be
Preferred Stock.
(B) Rights, Preferences and Restrictions of Preferred Stock. The Preferred
Stock authorized by this Fourth Amended and Restated Certificate of
Incorporation may be issued from time to time in one or more series. 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;
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(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
(8) Any other relative rights, preferences and limitations of that series.
(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 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) 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.
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.
(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
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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 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.
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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."
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EXHIBIT 10.15
AMENDED AND RESTATED NORTHPOINT COMMUNICATIONS GROUP, 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 Group, 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
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
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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.
(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 Group, 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.
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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) 21,250,000 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; 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 an amount equal to 5% of the total
number of shares of Common Stock outstanding on such anniversary date.
Notwithstanding the foregoing, the maximum aggregate number of Shares which
may be issued upon exercise of Incentive Stock Options (the "ISO Limitation")
is 21,250,000 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. Within the scope of such authority, the Board or the Committee
may (i) delegate to a committee of one or more members of the Board who are
not Independent Directors the authority to grant awards under the Plan to
eligible persons who are either (1) not then "covered employees," within the
meaning of Section 162(m) of the Code and are not expected to be "covered
employees" at the time of recognition of income resulting from such award or
(2) not persons with respect to whom the Company wishes to comply with Section
162(m) of the Code and/or (ii) delegate to a committee of one or more members
of the Board who are not "non-employee directors," within the meaning of Rule
16b-3, the authority to grant awards under the Plan to eligible persons who
are not then subject to Section 16 of the Exchange Act. The Board may abolish
the Committee at any time and revest in the Board the administration of the
Plan. 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;
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(iii) to determine the number of Shares to be covered by each such award
granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) subject to clause 9(a)(iii)(B) below, 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 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 2,100,000 Shares.
(d) The foregoing limitation shall be adjusted proportionately in connection
with any change in the Company's capitalization as described in Section 15.
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(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 (or the Board, as provided in clause
(a)(iii)(B) below), but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(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,
(A) Options may be granted with a per Share exercise price other than
as required above pursuant to a merger or other corporate transaction.
(B) Nonstatutory Stock Options granted to any Service Provider who
will serve as an Officer may be granted with a per Share exercise price
other than as required above; provided, however, that any such grant
shall be approved by both the Administrator and the full Board.
(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
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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.
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;
(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
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(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 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
7
<PAGE>
Option to purchase forty thousand (40,000) 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 thirteen thousand (13,000) 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 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.
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<PAGE>
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 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;
(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
9
<PAGE>
(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 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
10
<PAGE>
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. This Plan was originally approved by the
Stockholders of the Company as of April 9, 1999.
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 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.
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.
11
<PAGE>
EXHIBIT 10.29
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT, made as of April 18,
2000 (the "Effective Date"), is entered into by and between NorthPoint
Communications, Inc. (the "Company") and Elizabeth Fetter (the "Executive").
WHEREAS, the Company and Executive wish to enter into a formal
employment agreement that shall govern the terms and conditions of Executive's
employment with the Company and shall provide certain severance, stock option
and other benefits for Executive in the event that her employment should
terminate.
WHEREAS, the Executive is agreeing to abide by the restrictive
covenants contained herein and is foregoing other career opportunities in
reliance on this Employment Agreement,
WHEREAS, this Agreement amends and restates that certain Employment
Agreement dated March 7, 2000, between the Company and Executive.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the parties agree as follows:
1. Definitions
A. Target Bonus. "Target Bonus" means the target annual bonus for
------------
Executive during in any year or, if Executive is entitled to a bonus
under an individual written agreement with the Company, the annual bonus
to which Executive is entitled thereunder.
B. Base Salary. "Base Salary" means the greater of the annual rate of
-----------
base salary in effect for Executive at the time of Executive's Qualifying
Termination or the annual rate of base salary in effect for Executive
immediately before the Change in Control.
C. Cause. Termination for "Cause" means the following: (i) Executive's
-----
conviction of a felony or any crime of dishonesty; (ii) Executive's
commission of any act of fraud with respect to the Company; (iii) any
intentional misconduct by Executive intended to have a materially adverse
effect upon the Company's business; (iv) Executive's repeated failure to
satisfactorily perform her job duties; (v) an intentional breach by
Executive of any of Executive's fiduciary obligations as an officer or
director of the Company or a breach of this Employment Agreement or any
other agreement with the Company that has a materially adverse effect
upon the Company; or (vi) Executive's death or Permanent Disability.
D. Change in Control. "Change in Control" shall mean the occurrence of
-----------------
any of the following events:
(a) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 is or becomes the
"beneficial owner" (as
<PAGE>
defined in Rule 13d-3 under said Act), directly or indirectly, of
securities of the Company representing 50% or more of the total
voting power represented by the Company's then outstanding voting
securities; or
(b) The stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other
than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity)
at least 50% of the total voting power represented by the voting
securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the
stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets.
E. Change of Employment Circumstances. "Change of Employment
----------------------------------
Circumstances" means (i) a material reduction in Executive's level of
duties or responsibilities or the nature or scope of Executive's functions,
or (ii) a reduction in Executive's base salary or a reduction in
Executive's total cash compensation (consisting of base salary and target
bonus), or (iii) the failure to provide Executive with employee benefits
(including medical/dental, disability and life insurance) that are
substantially equivalent to the benefits provided to Executive immediately
before a Change in Control, or (iv) a relocation of Executive's principal
place of employment by more than thirty-five miles away (or any requirement
that Executive spend more than two days a week at any location more than
thirty-five miles away), or (v) the breach of the terms of any compensation
agreement or arrangement between the Company and Executive, or (vi) the
repudiation or failure by the Company or its successor to acknowledge (upon
Executive's written request) or to comply with any of its obligations under
this Employment Agreement.
F. Comparable Position. A "Comparable Position" means a position with a
-------------------
successor to part or all of the business of the Company, if the terms of
such position do not differ from Executive's prior position with the
Company in any manner that would constitute a Change of Employment
Circumstances, assuming that the terms of such new position with the
successor remained materially the same as the terms of Executive's
employment with the Company.
G. Final Determination. "Final Determination" means an audit adjustment by
-------------------
the Internal Revenue Service that is either (i) agreed to by both Executive
(or her estate) and the Company (such agreement by the Company to be not
unreasonably withheld) or (ii) sustained by a court of competent
jurisdiction in a decision with which Executive and the Company concur
(such concurrence by the Company to be not unreasonably withheld) or with
respect to which the period within which an appeal may be filed has lapsed
without a notice of appeal being filed.
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<PAGE>
H. Period of Coverage. The "Period of Coverage" means the period
------------------
commencing on the Effective Date and ending upon the date of termination of
this Employment Agreement.
I. Permanent Disability. "Permanent Disability" shall mean the inability
--------------------
of Executive to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment that is expected to
result in death or has lasted or can be expected to last for a continuous
period of twelve (12) months or more.
J. Qualifying Termination. "Qualifying Termination" shall mean a
----------------------
termination of Executive's employment with the Company either (i) by the
Company for any reason other than for Cause, or (ii) by Executive,
following the occurrence of a Change in Control that occurs during the
Period of Coverage which results in a Change of Employment Circumstances,
provided that Executive properly executes, and does not revoke or attempt
to revoke, a Release of claims against the Company, its affiliates and
their employees and agents in the form attached as Exhibit B (the
---------
"Release"). A Qualifying Termination shall be deemed not to have occurred
where Executive is offered a Comparable Position with the new corporate
entity subsequent to a Change in Control, whether or not Executive accepts
such position. If Executive is offered a position which is not a Comparable
Position and accepts such position, then Executive will be treated as if
she had been offered and accepted a Comparable Position.
2. Job Duties. Executive shall serve as the President and Chief Executive
Officer of the Company and shall, in such capacity, report directly to the Board
of Directors. In her capacity as President and Chief Executive Officer of the
Company, Executive shall devote substantially all of her time and attention to
the business and affairs of the Company.
3. Current Stock Options and Benefits.
A. Stock Option Grants. Pursuant to the Amended and Restated
-------------------
NorthPoint Communications Group, Inc. 1999 Stock Option Plan (the "Option
Plan"), Executive received two grants of stock options, one on March 22,
1999 (the "Initial Grant") and one on April 18, 2000 (the "Subsequent
Grant," and together with the Initial Grant, the "Stock Option Grants").
The Option Agreements between the Company and Executive Agreement that
underly the Stock Option Grants (the "Option Agreements") are attached
hereto as Exhibit A.
---------
B. Cash Compensation. Executive is paid a base salary at the annual
-----------------
rate of Four Hundred Thousand Dollars ($400,000.00), to be paid in
accordance with the Company's standard payroll policy. Such base salary may
be increased by the Board of Directors in its sole discretion.
C. Bonus. Executive shall be eligible to receive an annual target
-----
bonus of up to a maximum of one hundred percent (100%) of her annual base
salary. Payment of the bonus shall be at the discretion of the Compensation
Committee of the Company's Board of Directors and shall be based on the
achievement of objectives agreed to by the
3
<PAGE>
Compensation Committee of the Board of Directors. In future years, payment
of the bonus shall be at the discretion of the Compensation Committee of
the Company's Board of Directors and shall be based on the achievement of
objectives as determined by such Committee.
D. Other Employee Benefits. Executive shall, throughout the Period
-----------------------
of Coverage, be eligible to participate in all group term life insurance
plans, group health plans, accidental death and dismemberment plans and
short-term and long-term disability programs, sick leave, vacation leave
and other executive perquisites which are made available to the Company's
executive and/or other Company employees.
4. Additional Compensation. In addition to the compensation enumerated above,
-----------------------
and in return for the consideration contained herein, the Company has agreed to
provide the Executive with the compensation set forth in subsections A, B and C
below.
A. Supplemental Life Insurance. The Company will provide Executive with
---------------------------
supplemental group term life insurance coverage of $500,000 during the
Period of Coverage.
B. Financial Counseling Assistance. The Company will provide Executive
-------------------------------
with annual financial counseling during the Period of Coverage by a
provider selected by the Executive. In no event, however, shall the Company
provide Executive with financial counseling in an amount in excess of
$10,000 per year.
C. Change in Control.
-----------------
(1) Change in Control Protection. Notwithstanding anything to the
----------------------------
contrary in the Stock Option Grants or Option Agreements, upon
(i) a Change in Control of the Company, and (ii) a Qualifying
---
Termination of the Executive, the Executive shall be entitled
to the following benefits:
4
<PAGE>
a) Acceleration. Executive's Stock Option Grants, to the extent
------------
not otherwise exercisable for all the shares of Company common
stock underlying the Stock Option Grants, will immediately become
exercisable for all the shares of Company common stock underlying
the Stock Option Grants, and may be exercised for any or all of
those shares as fully vested shares. All options must be
exercised within ninety (90) days of the date of the Qualifying
Termination.
b) Installment Sum Payment of Salary and Bonus. Beginning
-------------------------------------------
within ten (10) business days after a Qualifying Termination (or,
if later, the last day of any period during which the Release may
be revoked by Executive), the Company shall make twelve (12)
equal monthly cash payments to Executive, subject to any
mandatory tax withholding, equal to one-twelfth (1/12) times the
sum of Executive's Annual Base Salary and Executive's Target
Bonus.
c) Continuing Benefit Coverage. The Company will, at normal
---------------------------
employee rates, provide Executive and, to the extent available
before the Qualifying Termination, Executive's eligible
dependents with coverage under the Company's medical/dental plan,
life insurance and accident plan and disability plan until the
earlier of (i) one (1) year after the date of Executive's
Qualifying Termination or (ii) the first date that Executive is
covered under another employer's program which provides
substantially the same level of benefit coverage without
exclusion for pre-existing conditions. After this period of
coverage, Executive (and, if applicable, Executive's eligible
dependents) may elect to continue coverage under the Company's
group medical/dental plan at Executive's own expense in
accordance with the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended ("COBRA") and, for purposes of
determining the maximum period of COBRA coverage, such maximum
period will begin immediately following the end of Company-
subsidized coverage.
d) Excess Tax Gross-Up Payment. If any compensation payable
---------------------------
hereunder, either alone or when aggregated with other
compensation payable to Executive, would constitute a parachute
payment that would subject Executive to an excise tax under
Section 4999 of the Internal Revenue Code, Executive shall be
entitled to receive an additional lump sum cash payment, subject
to mandatory tax withholding, which, when added to all
compensation payable to Executive that constitutes a parachute
payment, provides Executive with the same after tax-compensation
that she would have received from such parachute payments had
none of such compensation constituted a parachute payment (a "Tax
Gross-Up"). The procedures for making such payment are set forth
in Section 6.
5
<PAGE>
(2) Limitation on Acceleration. Notwithstanding anything else
--------------------------
set forth in this Section 4, if it is reasonably determined by
the Company's Board of Directors in good faith, upon consultation
with Company management and the Company's independent auditors,
that the acceleration of vesting of stock options or restricted
stock or the acceleration and cash-out of affiliate options upon
a Change in Control (to the extent that those Sections provide
for acceleration or cash-out that would not otherwise occur under
the terms of the instruments evidencing such options or
restricted stock) would preclude accounting for any proposed
business combination of the Company as a pooling of interests,
and the Board of Directors otherwise desires to approve such a
proposed business transaction which requires as a condition to
the closing of such transaction that it be accounted for as a
pooling of interests, then, solely to the extent necessary to
permit such accounting, such acceleration or cash-out shall not
occur. The previous sentence shall not limit any acceleration of
vesting or cash-out of any option or restricted stock that would
occur, in absence of this Employment Agreement, under the terms
of the Option Agreements or Option Plan.
(3) Offset of Benefits. The compensation and benefits payable
------------------
hereunder shall not be reduced or offset by any amounts that
Executive earns or could earn from any other sources following
Executive's Qualifying Termination. However, except to the extent
the Company expressly agrees otherwise in writing, if the Company
becomes obligated to pay Executive any severance pay or severance
benefits under a separate employment or severance agreement or
arrangement, the benefits payable hereunder shall be reduced by
the amount of benefits payable under such other agreement or
arrangement.
5. Restrictive Covenants.
A. In return for the consideration contained herein, Executive has
agreed to certain restrictive covenants set forth below. During the
Period of Coverage, Executive agrees that she shall:
(1) devote substantially all of her time and energy to the
performance of Executive's duties described herein, except during
periods of illness or vacation.
(2) not directly or indirectly provide services to or through
any person, firm or other entity except the Company, unless
otherwise authorized by the Company in writing.
(3) not render any services of any kind or character for
Executive's own account or for any other person, firm or entity
without first obtaining the Company's written consent.
B. Notwithstanding the foregoing, Executive shall have the right to
perform such incidental services as are necessary in connection with
(i) her private, passive investments, but only if Executive is not
obligated or required to (and shall not in fact)
6
<PAGE>
devote any managerial efforts which interfere with the services
required to be performed by him hereunder, (ii) her charitable or
community activities or (iii) participation in trade or professional
organizations, but only if such incidental services do not
significantly interfere with the performance of Executive's services
hereunder.
6. Excise Tax Gross-Up Procedures.
A. The amount of any such Tax Gross-Up to which Executive becomes
entitled under Section 4.C(1)(d), will be determined pursuant to the
following:
X = Y / (1 - (A + B + C)), where
X is the total dollar amount of the Tax Gross-Up payable to
Executive;
Y is the total Excise Tax (as defined in Internal revenue Code
Section 4999) imposed on Executive;
A is the Excise Tax rate in effect at the time;
B is the highest combined marginal federal income and applicable
state income tax rate in effect for Executive, after taking into
account the deductibility of state income taxes against federal
income taxes to the extent allowable, for the calendar year in
which the Tax Gross-Up is paid; and
C is the applicable Hospital Insurance (Medicare) Tax Rate in
effect for Executive for the calendar year in which the Tax
Gross-Up is paid;
provided if there is a change in the tax laws after the date hereof that would
render the amount determined above insufficient to fully reimburse Executive on
an after-tax basis for the amount of any Excise Tax, Executive shall be entitled
to such additional amount as may be necessary to provide him with such
reimbursement
B. Within ninety (90) days after a determination is made by the Internal
Revenue Service or Executive's tax advisor that an item of compensation or
benefit payable hereunder constitutes a parachute payment under Code
Section 280G for which Executive is liable for an Excise Tax, Executive
shall identify the nature of the payment to the Company and submit to the
Company the calculation of the Excise Tax attributable to that payment and
the Tax Gross-Up to which Executive is entitled with respect to such tax
liability. The Company will pay such Tax Gross-Up to Executive (net of all
applicable withholding taxes, including any taxes required to be withheld
under Code Section 4999) within ten (10) business days after Executive's
submission of the calculation of such Excise Tax and the resulting Tax
Gross-Up, provided such
7
<PAGE>
calculations represent a reasonable interpretation of the applicable
law and regulations.
C. In the event that Executive's actual Excise Tax liability is
determined by a Final Determination to be greater than the Excise Tax
liability previously taken into account for purposes of the Tax Gross-
Up paid to Executive pursuant to this Section 6, then within ninety
(90) days following the Final Determination, Executive shall submit to
the Company a new Excise Tax calculation based upon the Final
Determination. Within ten (10) business days after receipt of such
calculation, the Company shall pay Executive the additional Tax Gross-
Up attributable to such excess Excise Tax liability.
D. In the event that Executive's actual Excise Tax liability is
determined by a Final Determination to be less than the Excise Tax
bility previously taken into account for purposes of the Tax Gross-
Up paid to Executive pursuant to this Section 6, then Executive shall
refund to the Company, promptly upon receipt, any federal or state tax
refund attributable to the Excise Tax overpayment.
7. Termination of Employment.
A. By Company. The Company may terminate Executive's employment under
----------
this Employment Agreement at any time for any reason, with or without
Cause.
B. By Executive. Executive may terminate her employment under this
------------
Employment Agreement at any time, for any reason, with or without
Cause, by giving the Company at least thirty (30) days prior written
notice of such termination. However, such thirty (30) day notice
requirement shall not apply if Executive terminates her employment due
to a Change in Control.
8. Release of Claims. All compensation and benefits under Section 4 above are
in consideration for Executive's execution of the Release, which Release
Executive does not subsequently revoke or attempt to revoke. If Executive does
not execute such a Release or if Executive attempts to revoke such Release,
Executive will not be entitled to any of the benefits provided under this
Employment Agreement.
9. Successors and Assigns. The provisions of this Employment Agreement shall
inure to the benefit of, and shall be binding upon, the Company, its successors
and assigns, and the Executive, the personal representative of her estate and
her heirs and legatees; provided, however, Executive may not assign, transfer or
delegate her rights or obligations hereunder and any attempt to do so shall be
void.
10. Notices.
A. Any and all notices, demands or other communications required or
desired to be given hereunder by any party shall be in writing and
shall be validly given or made to another party if served either
personally or, if deposited in the United States mail, certified or
registered, postage prepaid, return receipt requested. If such notice,
demand or other communication shall be served personally, service
shall be conclusively deemed made at the time of such personal
service. If such notice, demand or other communication is given by
mail, service shall be conclusively deemed
8
<PAGE>
made at the time of the receipt by the party to whom such notice,
demand or other communication is sent. Any and all notices, demands or
other communications shall be delivered to the following address:
To the Company: NorthPoint Communications
303 2nd Street
San Francisco, CA 94107
Fax: (415) 403-4004
To Executive: Elizabeth Fetter
2855 Jackson St. #202
San Francisco, CA 94115
B. Any party hereto may change its address for the purpose of
receiving notices, demands and other communications as herein provided
by a written notice given in the manner aforesaid to the other party
hereto.
11. Waivers. No waiver of any term or provision of this Employment Agreement
shall be valid unless such waiver is in writing signed by the party against whom
enforcement of the waiver is sought. In the case of the Company, such waiver
shall be signed by at least one (1) member of the Company's Board. The waiver
of any term or provision of this Employment Agreement shall not apply to any
subsequent breach of this Employment Agreement.
12. Governing Document. This Employment Agreement, the Option Agreements, the
Option Plan, and all other exhibits and attachments hereto constitute the entire
agreement and understanding of the Company and Executive with respect to the
terms and conditions of Executive's employment with the Company and the payment
of severance and other benefits, and supersedes all prior and contemporaneous
written or verbal agreements and understandings between Executive and the
Company relating to such subject matter. Where the terms of the Option
Agreements or Option Plan conflict with the terms of this Employment Agreement,
the terms of this Employment Agreement shall control. Any and all prior
agreements, understandings or representations relating to Executive's employment
with the Company are hereby terminated and cancelled in their entirety and are
of no further force or effect.
13. Governing Law. The provisions of this Employment Agreement shall be
construed and interpreted under the laws of the State of California applicable
to agreements executed and to be wholly performed within the State of
California. If any provision of this Employment Agreement as applied to any
party or to any circumstance should be adjudged by a court of competent
jurisdiction to be void or unenforceable for any reason, the invalidity of that
provision shall in no way affect (to the maximum extent permitted by law) the
application of such provision under circumstances different from those
adjudicated by the court, the application of any other provision of this
Employment Agreement, or the enforceability or invalidity of this Employment
Agreement as a whole. Should any provision of this Employment Agreement become
or be
9
<PAGE>
deemed invalid, illegal or unenforceable in any jurisdiction by reason of the
scope, extent or duration of its coverage, then such provision shall be deemed
amended to the extent necessary to conform to applicable law so as to be valid
and enforceable or, if such provision cannot be so amended without materially
altering the intention of the parties, then such provision shall be stricken and
the remainder of this Employment Agreement shall continue in full force and
effect.
14. Deductions. All amounts paid to Executive hereunder are subject to all
withholdings and deductions required by law.
15. Amendment and Termination. This Employment Agreement may be modified,
amended or terminated only by a written agreement signed by Executive and an
authorized member of the Company's Board.
16. Remedies. All rights and remedies provided pursuant to this Employment
Agreement or by law shall be cumulative, and no such right or remedy shall be
exclusive of any other. A party may pursue any one or more rights or remedies
hereunder or may seek damages or specific performance in the event of another
party's breach hereunder or may pursue any other remedy by law or equity,
whether or not stated in this Employment Agreement.
17. Arbitration. Executive agrees that any and all disputes that she has with
the Company, or any of its employees, which arise out of her employment or under
the terms of her employment, shall be resolved through final and binding
arbitration, as specified herein. This shall include, without limitation,
disputes relating to this Employment Agreement, her employment by the Company or
the termination thereof, claims for breach of contract or breach of the covenant
of good faith and fair dealing, and any claims of discrimination or other claims
under Title VII of the Civil Rights Act of 1964, the Age Discrimination in
Employment Act, the Americans with Disabilities Act, the California Fair
Employment and Housing Act, the Employee Retirement Income Securities Act, the
Racketeer Influenced and Corrupt Organizations Act, or any other federal, state
or local law or regulation now in existence or hereinafter enacted and as
amended from time to time concerning in any way the subject of her employment
with the Company or its termination. The only disputes not covered by this
Employment Agreement are the following: (i) claims for benefits under the
unemployment insurance or workers' compensation laws, and (ii) claims concerning
the validity, infringement or enforceability of any trade secret, patent right,
copyright, trademark or any other intellectual property held or sought by the
Company or which the Company could otherwise seek; in each of these instances
such disputes or claims shall not be subject to arbitration, but rather, shall
be resolved pursuant to applicable law. Binding arbitration shall be conducted
in the county in which the Company's principal place of business is then located
in accordance with the rules and regulations of the American Arbitration
Association (AAA). One arbitrator shall be chosen by mutual agreement of the
Company and Executive from the AAA Employment Advisory Panel. Each side shall
bear its own attorneys' fees; that is, the arbitrator shall not have authority
to award attorneys' fees unless a statutory section at issue in the dispute
------
authorizes the award of attorneys' fees to the prevailing party, in which case
the arbitrator has authority to make such award as permitted by the statute in
question. Executive understands and agrees that the arbitration shall be
instead of any jury trial
10
<PAGE>
and that the arbitrator's decision shall be final and binding to the fullest
extent permitted by law and enforceable by any court having jurisdiction
thereof.
18. Counterparts. This Employment Agreement may be executed in more than one
counterpart, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the day and year first above written.
NORTH POINT COMMUNICATIONS, INC.
By /s/ NorthPoint Communications, Inc.
-----------------------------------
Name: Authorized Signatory
Title:
EXECUTIVE:
/s/ Elizabeth A. Fetter
--------------------------------------
(Signature)
Elizabeth A. Fetter
--------------------------------------
(Print Name)
11
<PAGE>
EXHIBIT A
12
<PAGE>
EXHIBIT B
Dear Ms. Fetter:
This letter is provided to confirm the agreement we have reached
regarding your separation from employment with NorthPoint Communications, Inc.,
(the "Company"). We have agreed that your employment with the Company will
terminate effective _________________, 200__.
In consideration of the benefits to be provided to you pursuant
to that certain in Amended and Restated Employment Agreement between you and the
Company dated April 18, 2000, you agree to the following:
A. You fully and forever release and promise not to institute or
participate in any legal proceeding against the Company or any of its directors,
officers, or employees with respect to any and all claims and causes of action
of any nature or kind, which are or may be claimed to exist, through and
including the date on which this Agreement is executed by you, including but not
limited to, any proceeding arising out of or relating in any way to your
employment with the Company or your separation from employment. You should
understand that you are forever waiving any rights you may have to pursue any
remedies available to you against the Company, including, but not limited to,
any employment-related cause of action, any tort or contract claims, any claim
for violation of any state, federal or local statute, ordinance or regulation
relating to employment or employment discrimination.
B. You have agreed to maintain in confidence all information you have
regarding the Company, its clients, the circumstances leading to your separation
from the Company and the terms of this Agreement, except to the extent you are
required by law to make any such disclosure.
C. This Agreement between us shall be deemed to have been entered into in
the State of California and shall be construed and interpreted in accordance
with the laws of this State. It supersedes any and all prior agreements between
you and the Company and contains the entire agreement between us.
D. You and the Company hereby expressly waive any and all rights and
benefits conferred by the provisions of Section 1542 of the Civil Code of the
State of California, which states as follows:
A general release does not extend to claims which
the creditor does not know or suspect to exist in
his favor at the time of executing the release,
which if known by him must have materially
affected his settlement with the debtor.
You may have up to ____________ (___) days in which to consider
this Agreement and you should review it with an attorney if you so desire. By
your signature below, you acknowledge that you have read and understand the
terms of this Agreement, and that you are signing it voluntarily and without
coercion. You further acknowledge that the waivers you
13
<PAGE>
have made in this Agreement are knowing, conscious and made with full
appreciation that you are forever foreclosed from pursuing any of the rights so
waived.
Very truly yours,
/s/ NorthPoint Communications
-----------------------------------
Dated: April 18, 2000 By: Authorized Signatory
--------------------------------
(Name, Title)
I hereby accept and agree to the terms and conditions set forth
in the above agreement.
Dated: April 18, 2000 /s/ Elizabeth Fetter
------------------ ----------------------------
(Executive Name)
14
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This EMPLOYMENT AGREEMENT, made as of April 3, 2000 (the "Effective
Date"), is entered into by and between Northpoint Communications, Inc. (the
"Company") and Michael P. Glinsky (the "Executive").
WHEREAS, the Company and Executive wish to enter into a formal
employment agreement that shall govern the terms and conditions of Executive's
employment with the Company and shall provide certain severance, stock option
and other benefits for Executive in the event that his employment should
terminate.
WHEREAS, the Executive is agreeing to abide by the restrictive
covenants contained herein and is foregoing other career opportunities in
reliance on this Employment Agreement,
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the parties agree as follows:
1. Definitions
A. Target Bonus. "Target Bonus" means the target annual bonus for
------------
Executive during in any year or, if Executive is entitled to a bonus
under an individual written agreement with the Company, the annual
bonus to which Executive is entitled thereunder.
B. Base Salary. "Base Salary" means the greater of the annual rate
-----------
of base salary in effect for Executive at the time of Executive's
Qualifying Termination or the annual rate of base salary in effect for
Executive immediately before the Change in Control.
C. Cause. Termination for "Cause" means the following: (i)
-----
Executive's conviction of a felony; (ii) Executive's commission of any
act of fraud with respect to the Company; (iii) any intentional
misconduct by Executive intended to have a materially adverse effect
upon the Company's business; (iv) Executive's repeated failure to
satisfactorily perform his job duties in any material respect; (v) an
intentional, material breach by Executive of any of Executive's
fiduciary obligations as an officer or director of the Company or a
breach of this Employment Agreement or any other agreement with the
Company that has a materially adverse effect upon the Company; or (vi)
Executive's death or Permanent Disability.
D. Change in Control. "Change in Control" shall mean the occurrence
-----------------
of any of the following events:
(a) Any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934 is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing
50% or more of the total voting power represented by the
Company's then outstanding voting securities; or
<PAGE>
(b) The stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other
than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity)
at least 50% of the total voting power represented by the voting
securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the
stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets.
E. Change of Employment Circumstances. "Change of Employment
----------------------------------
Circumstances" means (i) a material reduction in Executive's level of
duties or responsibilities or the nature or scope of Executive's
functions, including a change in reporting structure (for example, not
reporting directly to the Chief Executive Officer), or (ii) a
reduction in Executive's base salary or a reduction in Executive's
total cash compensation (consisting of base salary and target bonus),
or (iii) the failure to provide Executive with employee benefits
(including medical/dental, disability and life insurance) that are
substantially equivalent to the benefits provided to Executive
immediately before a Change in Control, or (iv) a relocation of
Executive's principal place of employment by more than thirty-five
miles away (or any requirement that Executive spend more than two days
a week on a regular basis at any location more than thirty-five miles
away), or (v) the breach by the Company of the terms of any
compensation agreement or arrangement between the Company and
Executive, or (vi) the repudiation or failure by the Company or its
successor to acknowledge (upon Executive's written request) or to
comply with any of its obligations under this Employment Agreement.
F. Comparable Position. A "Comparable Position" means a position
-------------------
with a successor to part or all of the business of the Company, if the
terms of such position (including the levels of responsibility,
reporting structure, title and similar aspects of the position) do not
differ from Executive's prior position with the Company in any manner
that would constitute a Change of Employment Circumstances, assuming
that the terms of such new position with the successor remained
materially the same as the terms of Executive's employment with the
Company.
G. Final Determination. "Final Determination" means an audit
-------------------
adjustment by the Internal Revenue Service that is either (i) agreed
to by both Executive (or his estate) and the Company (such agreement
by the Company to be not unreasonably withheld) or (ii) sustained by a
court of competent jurisdiction in a decision with which Executive and
the Company concur (such concurrence by the Company to be not
unreasonably withheld) or with respect to which the period within
which an appeal may be filed has lapsed without a notice of appeal
being filed.
H. Period of Coverage. The "Period of Coverage" means the period
------------------
commencing on the Effective Date and ending upon the date of
termination of this Employment
2
<PAGE>
Agreement.
I. Permanent Disability. "Permanent Disability" shall mean the
---------------------
inability of Executive to perform the services of an executive officer
of the Company, as required under this Agreement, by reason of any
medically determinable physical or mental impairment that has lasted
or can be expected to last for a continuous period of twelve (12)
months or more.
J. Qualifying Termination. "Qualifying Termination" shall mean a
----------------------
termination of Executive's employment with the Company either (i) by
the Company for any reason other than for Cause, or (ii) by Executive,
following the occurrence of a Change in Control that occurs during the
Period of Coverage which results in a Change of Employment
Circumstances, provided that Executive properly executes, and does not
revoke or attempt to revoke, a Release of claims against the Company,
its affiliates and their employees and agents in the form attached as
Exhibit B (the "Release"). A Qualifying Termination shall be deemed
---------
not to have occurred where Executive is offered a Comparable Position
with the new corporate entity subsequent to a Change in Control,
whether or not Executive accepts such position. If Executive is
offered a position which is not a Comparable Position and accepts such
position, then Executive will be treated as if he had been offered and
accepted a Comparable Position.
2. Job Duties. Executive shall serve as the Executive Vice President and
Chief Financial Officer of the Company and shall, in such capacity, report
directly to the President and Chief Executive Officer. In his capacity as
Executive Vice President and Chief Financial Officer of the Company, Executive
shall devote substantially all of his time and attention to the business and
affairs of the Company.
3. Current Stock Options and Benefits.
A. Initial Grant. Pursuant to the Amended and Restated
-------------
NorthPoint Communications Group, Inc. 1999 Stock Option Plan (the
"Option Plan"), Executive received a grant of stock options on April
3, 2000 (the "Initial Grant"). The Option Agreement between the
Company and Executive dated April 3, 2000 that underlies the Initial
Grant (the "Option Agreement") is attached hereto as Exhibit A.
---------
B. Cash Compensation. Executive is paid a base salary at the
-----------------
annual rate of Two-hundred and Fifty Thousand Dollars ($250,000.00),
to be paid in accordance with the Company's standard payroll policy.
Such base salary may be increased by the Board of Directors in its
sole discretion.
C. Bonus. Executive shall be eligible to receive an annual
-----
target bonus of up to a maximum of fifty percent (50%) of his annual
base salary. Payment of the bonus shall be at the discretion of the
Compensation Committee of the Company's Board of Directors and shall
be based on the achievement of objectives agreed to by the
Compensation Committee of the Board of Directors. In future years,
payment of the bonus shall be at the discretion of the Compensation
Committee of the Company's Board of Directors and shall be based on
the achievement of objectives as determined by such
3
<PAGE>
Committee.
D. Other Employee Benefits. Executive shall, throughout the
-----------------------
Period of Coverage, be eligible to participate in all group term life
insurance plans, group health plans, accidental death and
dismemberment plans and short-term and long-term disability programs,
sick leave, vacation leave and other executive perquisites which are
made available to the Company's executive and/or other Company
employees. Such participation shall be on terms no less favorable to
Executive than the terms generally provided to the Company's executive
officers or to any other Company employees, provided that Executive
qualifies for participation in such plans, programs and/or
perquisites.
E. Commuting Expenses. The Company acknowledges that
------------------
Executive's primary residence shall remain in the Denver, Colorado
area during the term of his employment with the Company. The Company
shall reimburse Executive for reasonable housing and commuting
expenses incurred by Executive in connection with the performance of
his obligations under this Agreement for a period of two years from
the date of this Agreement, including reimbursement for (1) rental
expenses of up to $3,700 per month for a one-bedroom apartment that is
within walking distance of the Company's corporate offices in San
Francisco, California, and (2) reasonable airline travel between
Executive's primary residence and the Company's corporate offices. In
addition, the Company shall gross-up any reimbursed amounts to the
extent such amounts are taxable. The Company will make such payments
within 30 days after receipt of Executive's written request therefore,
which request shall be accompanied by documentation supporting the
request for reimbursement.
4. Additional Compensation. In addition to the compensation enumerated above,
-----------------------
and in return for the consideration contained herein, the Company has agreed to
provide the Executive with the compensation set forth in subsections A, B and C
below.
A. Supplemental Life Insurance. The Company will provide Executive
---------------------------
with supplemental group term life insurance coverage of $500,000
during the Period of Coverage.
B. Financial Counseling Assistance. The Company will provide
-------------------------------
Executive with annual financial counseling (which may include tax and
estate planning services) during the Period of Coverage by a provider
selected by the Executive. In no event, however, shall the Company
provide Executive with financial counseling in an amount in excess of
$10,000 per year.
C. Change in Control.
-----------------
(1) Change in Control Protection. Notwithstanding anything to
----------------------------
the contrary in the Initial Grant or Option Agreement, upon (i) a
Change in Control of the Company, and (ii) a Qualifying
---
Termination of the Executive, the Executive shall be entitled to
the following benefits:
a) Acceleration. Executive's Initial Grant, to the
-------------
extent not otherwise exercisable for all the shares of
Company common stock underlying the Initial Grant, will
immediately become exercisable for all the shares of
4
<PAGE>
Company common stock underlying the Initial Grant, and
may be exercised for any or all of those shares as
fully vested shares. All options must be exercised
within ninety (90) days of the date of the Qualifying
Termination.
b) Installment Sum Payment of Salary and Bonus.
-------------------------------------------
Beginning within ten (10) business days after a
Qualifying Termination (or, if later, the last day of
any period during which the Release may be revoked by
Executive), the Company shall make six (6) equal
monthly cash payments to Executive, subject to any
mandatory tax withholding, equal to one-sixth (1/6)
times the sum of Executive's Annual Base Salary and
Executive's Target Bonus.
c) Continuing Benefit Coverage. The Company will,
---------------------------
at normal employee rates, provide Executive and, to the
extent available before the Qualifying Termination,
Executive's eligible dependents with coverage under the
Company's medical/dental plan, life insurance and
accident plan and disability plan until the earlier of
(i) six (6) months year after the date of Executive's
Qualifying Termination or (ii) the first date that
Executive is covered under another employer's program
which provides substantially the same level of benefit
coverage without exclusion for pre-existing conditions.
After this period of coverage, Executive (and, if
applicable, Executive's eligible dependents) may elect
to continue coverage under the Company's group
medical/dental plan at Executive's own expense in
accordance with the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA") and,
for purposes of determining the maximum period of COBRA
coverage, such maximum period will begin immediately
following the end of Company-subsidized coverage.
d) Excess Tax Gross-Up Payment. If any compensation
---------------------------
payable hereunder, either alone or when aggregated with
other compensation payable to Executive, would
constitute a parachute payment that would subject
Executive to an excise tax under Section 4999 of the
Internal Revenue Code, Executive shall be entitled to
receive an additional lump sum cash payment, subject to
mandatory tax withholding, which, when added to all
compensation payable to Executive that constitutes a
parachute payment, provides Executive with the same
after tax-compensation that he would have received from
such parachute payments had none of such compensation
constituted a parachute payment (a "Tax Gross-Up"). The
procedures for making such payment are set forth in
Section 6.
(2) Limitation on Acceleration. Notwithstanding anything else
--------------------------
set forth in this Section 4, if it is reasonably determined by
the Company's Board of Directors in good faith, upon consultation
with Company management and the Company's independent auditors,
that the acceleration of vesting of stock options or restricted
5
<PAGE>
stock or the acceleration and cash-out of affiliate options upon
a Change in Control (to the extent that those Sections provide
for acceleration or cash-out that would not otherwise occur under
the terms of the instruments evidencing such options or
restricted stock) would preclude accounting for any proposed
business combination of the Company as a pooling of interests,
and the Board of Directors otherwise desires to approve such a
proposed business transaction which requires as a condition to
the closing of such transaction that it be accounted for as a
pooling of interests, then, solely to the extent necessary to
permit such accounting, such acceleration or cash-out shall not
occur. The previous sentence shall not limit any acceleration of
vesting or cash-out of any option or restricted stock that would
occur, in absence of this Employment Agreement, under the terms
of the Option Agreement or Option Plan.
(3) Offset of Benefits. The compensation and benefits payable
-------------------
hereunder shall not be reduced or offset by any amounts that
Executive earns or could earn from any other sources following
Executive's Qualifying Termination. However, except to the extent
the Company expressly agrees otherwise in writing, if the Company
becomes obligated to pay Executive any severance pay or severance
benefits under a separate employment or severance agreement or
arrangement with the Company, the benefits payable hereunder
shall be reduced by the amount of benefits payable under such
other agreement or arrangement.
5. Restrictive Covenants.
A. In return for the consideration contained herein, Executive has
agreed to certain restrictive covenants set forth below. During the
Period of Coverage, Executive agrees that he shall:
(1) devote substantially all of his time and energy to the
performance of Executive's duties described herein, except
during periods of illness or vacation.
(2) not directly or indirectly provide services to or
through any person, firm or other entity except the Company,
unless otherwise authorized by the Company in writing.
(3) not render any services of any kind or character for
Executive's own account or for any other person, firm or
entity without first obtaining the Company's written
consent.
B. Notwithstanding the foregoing, Executive shall have the right to
perform such incidental services as are necessary in connection with
(i) his private, passive investments, but only if Executive is not
obligated or required to (and shall not in fact) devote any managerial
efforts which interfere with the services required to be performed by
him hereunder, (ii) his charitable or community activities, (iii)
participation in trade or professional organizations, but only if such
incidental services do not significantly interfere with the
performance of Executive's services hereunder, or (iv) service as a
6
<PAGE>
member of the Board of Directors of Commercial Federal Bank
Corporation, Regis University, the Santa Fe Opera and the Colorado
Symphony (unless and until notified to the contrary by the Company),
and such other boards as are approved in writing by the Company.
6. Excise Tax Gross-Up Procedures.
A. The amount of any such Tax Gross-Up to which Executive becomes
entitled under Section 4.C(1)(d), will be determined pursuant to the
following:
X = Y / (1 - (A + B + C)), where
X is the total dollar amount of the Tax Gross-Up payable to
Executive;
Y is the total Excise Tax (as defined in Internal revenue
Code Section 4999) imposed on Executive;
A is the Excise Tax rate in effect at the time;
B is the highest combined marginal federal income and
applicable state income tax rate in effect for Executive,
after taking into account disallowance of itemized
deductions caused by an event described in Section
4.C.(1)(d) and the deductibility of state income taxes
against federal income taxes to the extent allowable, for
the calendar year in which the Tax Gross-Up is paid; and
C is the applicable FICA Tax Rate in effect for Executive
for the calendar year in which the Tax Gross-Up is paid;
provided if there is a change in the tax laws after the date hereof that would
render the amount determined above insufficient to fully reimburse Executive on
an after-tax basis for the amount of any Excise Tax, Executive shall be entitled
to such additional amount as may be necessary to provide him with such
reimbursement
B. Within ninety (90) days after a determination is made by the Internal
Revenue Service or Executive's tax advisor that an item of compensation or
benefit payable hereunder constitutes a parachute payment under Code
Section 280G for which Executive is liable for an Excise Tax, Executive
shall identify the nature of the payment to the Company and submit to the
Company the calculation of the Excise Tax attributable to that payment and
the Tax Gross-Up to which Executive is entitled with respect to such tax
liability. The Company will pay such Tax Gross-Up to Executive (net of all
applicable withholding taxes, including any taxes required to be withheld
under Code Section 4999) within ten (10) business days after Executive's
submission of the calculation of such Excise Tax and the resulting Tax
Gross-Up, provided such calculations represent a reasonable interpretation
of the applicable law and regulations.
7
<PAGE>
C. In the event that Executive's actual Excise Tax liability is
determined by a Final Determination to be greater than the Excise Tax
liability previously taken into account for purposes of the Tax Gross-
Up paid to Executive pursuant to this Section 6, then within ninety
(90) days following the Final Determination, Executive shall submit to
the Company a new Excise Tax calculation based upon the Final
Determination. Within ten (10) business days after receipt of such
calculation, the Company shall pay Executive the additional Tax Gross-
Up attributable to such excess Excise Tax liability.
D. In the event that Executive's actual Excise Tax liability is
determined by a Final Determination to be less than the Excise Tax
liability previously taken into account for purposes of the Tax Gross-
Up paid to Executive pursuant to this Section 6, then Executive shall
refund to the Company, promptly upon receipt, any federal or state tax
refund attributable to the Excise Tax overpayment.
7. Termination of Employment.
A. By Company. The Company may terminate Executive's employment
----------
under this Employment Agreement at any time for any reason, with or
without Cause.
B. By Executive. Executive may terminate his employment under this
------------
Employment Agreement at any time, for any reason, with or without
Cause, by giving the Company at least thirty (30) days prior written
notice of such termination. However, such thirty (30) day notice
requirement shall not apply if Executive terminates his employment due
to a Change in Control.
8. Release of Claims. All compensation and benefits under Section 4 above are
in consideration for Executive's execution of the Release, which Release
Executive does not subsequently revoke or attempt to revoke. If Executive does
not execute such a Release or if Executive attempts to revoke such Release,
Executive will not be entitled to any of the benefits provided under this
Employment Agreement.
9. Successors and Assigns. The provisions of this Employment Agreement shall
inure to the benefit of, and shall be binding upon, the Company, its successors
and assigns, and the Executive, the personal representative of his estate and
his heirs and legatees; provided, however, Executive may not assign, transfer or
delegate his rights or obligations hereunder and any attempt to do so shall be
void.
10. Notices.
A. Any and all notices, demands or other communications required or
desired to be given hereunder by any party shall be in writing and
shall be validly given or made to another party if served either
personally or, if deposited in the United States mail, certified or
registered, postage prepaid, return receipt requested. If such notice,
demand or other communication shall be served personally, service
shall be conclusively deemed made at the time of such personal
service. If such notice, demand or other
8
<PAGE>
communication is given by mail, service shall be conclusively deemed
made at the time of the receipt by the party to whom such notice,
demand or other communication is sent. Any and all notices, demands or
other communications shall be delivered to the following address:
To the Company: NorthPoint Communications
303 2/nd/ Street
San Francisco, CA 94107
Fax: (415) 403-4004
To Executive: Michael P. Glinsky
3200 Cherry Creek South Drive
Suite 230
Denver, CO 80209
B. Any party hereto may change its address for the purpose of
receiving notices, demands and other communications as herein provided
by a written notice given in the manner aforesaid to the other party
hereto.
11. Waivers. No waiver of any term or provision of this Employment Agreement
shall be valid unless such waiver is in writing signed by the party against whom
enforcement of the waiver is sought. In the case of the Company, such waiver
shall be signed by at least one (1) member of the Company's Board. The waiver
of any term or provision of this Employment Agreement shall not apply to any
subsequent breach of this Employment Agreement.
12. Governing Document. This Employment Agreement, the Option Agreement, the
Option Plan, and all other exhibits and attachments hereto constitute the entire
agreement and understanding of the Company and Executive with respect to the
terms and conditions of Executive's employment with the Company and the payment
of severance and other benefits, and supersedes all prior and contemporaneous
written or verbal agreements and understandings between Executive and the
Company relating to such subject matter. Where the terms of the Option
Agreement or Option Plan conflict with the terms of this Employment Agreement,
the terms of this Employment Agreement shall control. Any and all prior
agreements, understandings or representations relating to Executive's employment
with the Company are hereby terminated and cancelled in their entirety and are
of no further force or effect.
13. Governing Law. The provisions of this Employment Agreement shall be
construed and interpreted under the laws of the State of California applicable
to agreements executed and to be wholly performed within the State of
California. If any provision of this Employment Agreement as applied to any
party or to any circumstance should be adjudged by a court of competent
jurisdiction to be void or unenforceable for any reason, the invalidity of that
provision shall in no way affect (to the maximum extent permitted by law) the
application of such provision under circumstances different from those
adjudicated by the court, the application of any other provision of this
Employment Agreement, or the enforceability or invalidity of this Employment
Agreement as a whole. Should any provision of this Employment Agreement become
or be
9
<PAGE>
deemed invalid, illegal or unenforceable in any jurisdiction by reason of
the scope, extent or duration of its coverage, then such provision shall be
deemed amended to the extent necessary to conform to applicable law so as to be
valid and enforceable or, if such provision cannot be so amended without
materially altering the intention of the parties, then such provision shall be
stricken and the remainder of this Employment Agreement shall continue in full
force and effect.
14. Deductions. All amounts paid to Executive hereunder are subject to all
withholdings and deductions required by law.
15. Amendment and Termination. This Employment Agreement may be modified,
amended or terminated only by a written agreement signed by Executive and an
authorized member of the Company's Board.
16. Remedies. All rights and remedies provided pursuant to this Employment
Agreement or by law shall be cumulative, and no such right or remedy shall be
exclusive of any other. A party may pursue any one or more rights or remedies
hereunder or may seek damages or specific performance in the event of another
party's breach hereunder or may pursue any other remedy by law or equity,
whether or not stated in this Employment Agreement.
17. Arbitration. Executive agrees that any and all disputes that he has with
the Company, or any of its employees, which arise out of his employment or under
the terms of his employment, shall be resolved through final and binding
arbitration, as specified herein. This shall include, without limitation,
disputes relating to this Employment Agreement, his employment by the Company or
the termination thereof, claims for breach of contract or breach of the covenant
of good faith and fair dealing, and any claims of discrimination or other claims
under Title VII of the Civil Rights Act of 1964, the Age Discrimination in
Employment Act, the Americans with Disabilities Act, the California Fair
Employment and Housing Act, the Employee Retirement Income Securities Act, the
Racketeer Influenced and Corrupt Organizations Act, or any other federal, state
or local law or regulation now in existence or hereinafter enacted and as
amended from time to time concerning in any way the subject of his employment
with the Company or its termination. The only disputes not covered by this
Employment Agreement are the following: (i) claims for benefits under the
unemployment insurance or workers' compensation laws, and (ii) claims concerning
the validity, infringement or enforceability of any trade secret, patent right,
copyright, trademark or any other intellectual property held or sought by the
Company or which the Company could otherwise seek; in each of these instances
such disputes or claims shall not be subject to arbitration, but rather, shall
be resolved pursuant to applicable law. Binding arbitration shall be conducted
in the county in which the Company's principal place of business is then located
in accordance with the rules and regulations of the American Arbitration
Association (AAA). One arbitrator shall be chosen by mutual agreement of the
Company and Executive from the AAA Employment Advisory Panel. Each side shall
bear its own attorneys' fees; that is, the arbitrator shall not have authority
to award attorneys' fees unless a statutory section at issue in the dispute
------
authorizes the award of attorneys' fees to the prevailing party, in which case
the arbitrator has authority to make such award as permitted by the statute in
question. Executive understands and agrees that the arbitration shall be
instead of any jury trial and that the arbitrator's decision shall be final and
binding to the fullest extent permitted by law
10
<PAGE>
and enforceable by any court having jurisdiction thereof. Executive and the
Company shall share equally the costs of the arbitrator.
18. Counterparts. This Employment Agreement may be executed in more than one
counterpart, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the day and year first above written.
NORTHPOINT COMMUNICATIONS, INC.
By /s/ NorthPoint Communications, Inc.
-------------------------------------
EXECUTIVE:
/s/ Michael P. Glinsky
---------------------------------------
(Signature)
Michael P. Glinsky
---------------------------------------
(Print Name)
11
<PAGE>
EXHIBIT A
STOCK OPTION AGREEMENT
----------------------
[Attached]
12
<PAGE>
EXHIBIT B
---------
FORM OF RELEASE
---------------
Dear Mr. Glinsky:
This letter is provided to confirm the agreement we have reached
regarding your separation from employment with NorthPoint Communications, Inc.,
(the "Company"). We have agreed that your employment with the Company will
terminate effective _________________, 200__.
In consideration of the benefits to be provided to you pursuant to
that certain in Employment Agreement between you and the Company dated April 3,
2000, you agree to the following:
A. Except for amounts payable under the Employment Agreement and benefits
required to be provided pursuant to the Employment Agreement, and except with
respect to any claims arising out of a breach by the Company of the Employment
Agreement, you fully and forever release and promise not to institute or
participate in any legal proceeding against the Company or any of its directors,
officers, or employees with respect to any and all claims and causes of action
of any nature or kind, which are or may be claimed to exist, through and
including the date on which this Agreement is executed by you, including but not
limited to, any proceeding arising out of or relating in any way to your
employment with the Company or your separation from employment. You should
understand that you are forever waiving any rights you may have to pursue any
remedies available to you against the Company, including, but not limited to,
any employment-related cause of action, any tort or contract claims, any claim
for violation of any state, federal or local statute, ordinance or regulation
relating to employment or employment discrimination.
B. You have agreed to maintain in confidence all information you have
regarding the Company, its clients, the circumstances leading to your separation
from the Company and the terms of this Agreement, except to the extent you are
required by law to make any such disclosure.
C. This Agreement between us shall be deemed to have been entered into in
the State of California and shall be construed and interpreted in accordance
with the laws of this State. It supersedes any and all prior agreements between
you and the Company and contains the entire agreement between us.
D. You and the Company hereby expressly waive any and all rights and
benefits conferred by the provisions of Section 1542 of the Civil Code of the
State of California, which states as follows:
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor
at the time of executing the release, which if known by
him must have materially affected his settlement with
the debtor.
13
<PAGE>
You may have up to ____________ (___) days in which to consider this
Agreement and you should review it with an attorney if you so desire. By your
signature below, you acknowledge that you have read and understand the terms of
this Agreement, and that you are signing it voluntarily and without coercion.
You further acknowledge that the waivers you have made in this Agreement are
knowing, conscious and made with full appreciation that you are forever
foreclosed from pursuing any of the rights so waived.
Very truly yours,
____________________________
Dated:____________________ By:________________________________
(Name, Title)
I hereby accept and agree to the terms and conditions set forth in the
above agreement.
Dated:___________________ ___________________________________
(Executive Name)
14
<PAGE>
EXHIBIT 10.35
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
---------------------------------------
This AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT, made as of April 17,
2000 (the "Effective Date"), is entered into by and between NorthPoint
Communications, Inc. (the "Company") and Herman W. Bluestein (the "Executive").
WHEREAS, the Company and Executive are parties to that certain
Employment Agreement dated as of March 7, 2000 (the "Original Employment
Agreement").
WHEREAS, the Company and Executive wish to amend the Original
Employment Agreement to revise Executive's salary and title.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the parties agree as follows:
1. Amendment to Section 2. Section 2 of the Original Employment Agreement is
hereby amended by deleting such section in its entirety and inserting in its
place the following:
"2. Job Duties. Executive shall serve as the Executive Vice President and
Chief Development Officer of the Company and shall, in such capacity, report
directly to the President and Chief Executive Officer. In his capacity as
Executive Vice President and Chief Development Officer of the Company, Executive
shall devote substantially all of his time and attention to the business and
affairs of the Company."
2. Successors and Assigns. The provisions of this Amendment shall inure to the
benefit of, and shall be binding upon, the Company, its successors and assigns,
and the Executive, the personal representative of his estate and his heirs and
legatees; provided, however, Executive may not assign, transfer or delegate his
rights or obligations hereunder and any attempt to do so shall be void.
3. Governing Document; Effect of Amendment. This Amendment, the Original
Employment Agreement and the Purchase Agreement, and all other exhibits and
attachments thereto, constitute the entire agreement and understanding of the
Company and Executive with respect to the terms and conditions of Executive's
employment with the Company and the payment of severance and other benefits, and
supersedes all prior and contemporaneous written or verbal agreements and
understandings between Executive and the Company relating to such subject
matter. Where the terms of the Purchase Agreement conflict with the terms of
the Original Employment Agreement, as amended by this Amendment, the terms of
the Original Employment Agreement shall control. Any and all prior agreements,
understandings or representations relating to Executive's employment with the
Company are hereby terminated and cancelled in their entirety and are of no
further force or effect. On and after the date hereof, each reference in the
Original Employment Agreement to the "Employment Agreement" or the "Agreement"
shall mean the Original Employment Agreement as amended hereby. Except as
specifically amended above, the Original Employment Agreement shall remain in
full force and effect and is hereby ratified and confirmed.
<PAGE>
4. Governing Law. The provisions of this Amendment shall be construed and
interpreted under the laws of the State of California applicable to agreements
executed and to be wholly performed within the State of California. If any
provision of this Amendment as applied to any party or to any circumstance
should be adjudged by a court of competent jurisdiction to be void or
unenforceable for any reason, the invalidity of that provision shall in no way
affect (to the maximum extent permitted by law) the application of such
provision under circumstances different from those adjudicated by the court, the
application of any other provision of this Amendment, or the enforceability or
invalidity of this Amendment as a whole. Should any provision of this Amendment
become or be deemed invalid, illegal or unenforceable in any jurisdiction by
reason of the scope, extent or duration of its coverage, then such provision
shall be deemed amended to the extent necessary to conform to applicable law so
as to be valid and enforceable or, if such provision cannot be so amended
without materially altering the intention of the parties, then such provision
shall be stricken and the remainder of this Amendment shall continue in full
force and effect.
5. Counterparts. This Amendment may be executed in more than one counterpart,
each of which shall be deemed an original, but all of which together shall
constitute but one and the same instrument.
6. No Other Amendments. Except as specifically provided in this Amendment, no
amendments, revisions or changes are made to the Original Employment Agreement.
All other terms and conditions of the Original Employment Agreement remain in
full force and effect and apply fully to this Amendment.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1
to Employment Agreement as of the day and year first above written.
NORTHPOINT COMMUNICATIONS, INC.
By /s/ NorthPoint Communications, Inc.
-----------------------------------
Name: Authorized Signatory
Title:
EXECUTIVE:
/s/ Herman W. Bluestein
------------------------------------
(Signature)
/s/ Herman W. Bluestein
------------------------------------
(Print Name)
3
<PAGE>
EXHIBIT 10.36
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
---------------------------------------
This AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT, made as of
April 17, 2000 (the "Effective Date"), is entered into by and between NorthPoint
Communications, Inc. (the "Company") and Steven Gorosh (the "Executive").
WHEREAS, the Company and Executive are parties to that certain
Employment Agreement dated as of March 7, 2000 (the "Original Employment
Agreement").
WHEREAS, the Company and Executive wish to amend the Original
Employment Agreement to revise Executive's salary and title.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the parties agree as follows:
1. Amendment to Section 2. Section 2 of the Original Employment Agreement
is hereby amended by deleting such section in its entirety and inserting in its
place the following:
"2. Job Duties. Executive shall serve as the Executive Vice President,
General Counsel and Secretary of the Company and shall, in such capacity, report
directly to the President and Chief Executive Officer. In his capacity as
Executive Vice President, General Counsel and Secretary of the Company,
Executive shall devote substantially all of his time and attention to the
business and affairs of the Company."
2. Amendment to Section 3.B. Section 3.B. of the Original Employment
Agreement is hereby amended by deleting such section in its entirety and
inserting in its place the following:
"B. Cash Compensation. Executive is paid a base salary at the annual
-----------------
rate of Two Hundred Twenty-Five Thousand Dollars ($225,000.00), to be
paid in accordance with the Company's standard payroll policy. Such
base salary may be increased by the Board of Directors in its sole
discretion."
3. Successors and Assigns. The provisions of this Amendment shall inure to
the benefit of, and shall be binding upon, the Company, its successors and
assigns, and the Executive, the personal representative of his estate and his
heirs and legatees; provided, however, Executive may not assign, transfer or
delegate his rights or obligations hereunder and any attempt to do so shall be
void.
4. Governing Document; Effect of Amendment. This Amendment, the Original
Employment Agreement and the Purchase Agreement, and all other exhibits and
attachments thereto, constitute the entire agreement and understanding of the
Company and Executive with respect to the terms and conditions of Executive's
employment with the Company and the payment of severance and other benefits, and
supersedes all prior and contemporaneous written or verbal agreements and
understandings between Executive and the Company relating to such subject
matter. Where the terms of the Purchase Agreement conflict with the terms of the
Original Employment Agreement, as amended by this Amendment, the terms of the
Original
<PAGE>
Employment Agreement shall control. Any and all prior agreements, understandings
or representations relating to Executive's employment with the Company are
hereby terminated and cancelled in their entirety and are of no further force or
effect. On and after the date hereof, each reference in the Original Employment
Agreement to the "Employment Agreement" or the "Agreement" shall mean the
Original Employment Agreement as amended hereby. Except as specifically amended
above, the Original Employment Agreement shall remain in full force and effect
and is hereby ratified and confirmed.
5. Governing Law. The provisions of this Amendment shall be construed and
interpreted under the laws of the State of California applicable to agreements
executed and to be wholly performed within the State of California. If any
provision of this Amendment as applied to any party or to any circumstance
should be adjudged by a court of competent jurisdiction to be void or
unenforceable for any reason, the invalidity of that provision shall in no way
affect (to the maximum extent permitted by law) the application of such
provision under circumstances different from those adjudicated by the court, the
application of any other provision of this Amendment, or the enforceability or
invalidity of this Amendment as a whole. Should any provision of this Amendment
become or be deemed invalid, illegal or unenforceable in any jurisdiction by
reason of the scope, extent or duration of its coverage, then such provision
shall be deemed amended to the extent necessary to conform to applicable law so
as to be valid and enforceable or, if such provision cannot be so amended
without materially altering the intention of the parties, then such provision
shall be stricken and the remainder of this Amendment shall continue in full
force and effect.
6. Counterparts. This Amendment may be executed in more than one counterpart,
each of which shall be deemed an original, but all of which together shall
constitute but one and the same instrument.
7. No Other Amendments. Except as specifically provided in this Amendment, no
amendments, revisions or changes are made to the Original Employment Agreement.
All other terms and conditions of the Original Employment Agreement remain in
full force and effect and apply fully to this Amendment.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No.
1 to Employment Agreement as of the day and year first above written.
NORTHPOINT COMMUNICATIONS, INC.
By /s/ NorthPoint Communications, Inc.
------------------------------------
Name: Authorized Signatory
Title:
EXECUTIVE:
/s/ Steven J. Gorosh
--------------------------------------
(Signature)
Steven J. Gorosh
--------------------------------------
(Print Name)
3
<PAGE>
EXHIBIT 10.37
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
---------------------------------------
This AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT, made as of April
17, 2000 (the "Effective Date"), is entered into by and between NorthPoint
Communications, Inc. (the "Company") and Nancy J. Hemmenway (the "Executive").
WHEREAS, the Company and Executive are parties to that certain
Employment Agreement dated as of March 7, 2000 (the "Original Employment
Agreement").
WHEREAS, the Company and Executive wish to amend the Original
Employment Agreement to revise Executive's title.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the parties agree as follows:
1. Amendment to Section 2. Section 2 of the Original Employment Agreement
is hereby amended by deleting such section in its entirety and inserting in its
place the following:
"2. Job Duties. Executive shall serve as the Executive Vice President,
Human Resources and Administration of the Company and shall, in such capacity,
report directly to the President and Chief Executive Officer. In his capacity as
Executive Vice President, Human Resources and Administration of the Company,
Executive shall devote substantially all of his time and attention to the
business and affairs of the Company."
2. Successors and Assigns. The provisions of this Amendment shall inure to the
benefit of, and shall be binding upon, the Company, its successors and assigns,
and the Executive, the personal representative of his estate and his heirs and
legatees; provided, however, Executive may not assign, transfer or delegate his
rights or obligations hereunder and any attempt to do so shall be void.
3. Governing Document; Effect of Amendment. This Amendment, the Original
Employment Agreement and the Purchase Agreement, and all other exhibits and
attachments thereto, constitute the entire agreement and understanding of the
Company and Executive with respect to the terms and conditions of Executive's
employment with the Company and the payment of severance and other benefits, and
supersedes all prior and contemporaneous written or verbal agreements and
understandings between Executive and the Company relating to such subject
matter. Where the terms of the Purchase Agreement conflict with the terms of the
Original Employment Agreement, as amended by this Amendment, the terms of the
Original Employment Agreement shall control. Any and all prior agreements,
understandings or representations relating to Executive's employment with the
Company are hereby terminated and cancelled in their entirety and are of no
further force or effect. On and after the date hereof, each reference in the
Original Employment Agreement to the "Employment Agreement" or the "Agreement"
shall mean the Original Employment Agreement as amended hereby. Except as
specifically amended above, the Original Employment Agreement shall remain in
full force and effect and is hereby ratified and confirmed.
<PAGE>
4. Governing Law. The provisions of this Amendment shall be construed and
interpreted under the laws of the State of California applicable to agreements
executed and to be wholly performed within the State of California. If any
provision of this Amendment as applied to any party or to any circumstance
should be adjudged by a court of competent jurisdiction to be void or
unenforceable for any reason, the invalidity of that provision shall in no way
affect (to the maximum extent permitted by law) the application of such
provision under circumstances different from those adjudicated by the court, the
application of any other provision of this Amendment, or the enforceability or
invalidity of this Amendment as a whole. Should any provision of this Amendment
become or be deemed invalid, illegal or unenforceable in any jurisdiction by
reason of the scope, extent or duration of its coverage, then such provision
shall be deemed amended to the extent necessary to conform to applicable law so
as to be valid and enforceable or, if such provision cannot be so amended
without materially altering the intention of the parties, then such provision
shall be stricken and the remainder of this Amendment shall continue in full
force and effect.
5. Counterparts. This Amendment may be executed in more than one counterpart,
each of which shall be deemed an original, but all of which together shall
constitute but one and the same instrument.
6. No Other Amendments. Except as specifically provided in this Amendment, no
amendments, revisions or changes are made to the Original Employment Agreement.
All other terms and conditions of the Original Employment Agreement remain in
full force and effect and apply fully to this Amendment.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No.
1 to Employment Agreement as of the day and year first above written.
NORTHPOINT COMMUNICATIONS, INC.
By /s/ NorthPoint Communications, Inc.
-------------------------------------
Name: Authorized Signatory
Title:
EXECUTIVE:
/s/ Nancy J. Hemmenway
-------------------------------------
(Signature)
Nancy J. Hemmenway
-------------------------------------
(Print Name)
3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH 31,
2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 278,731
<SECURITIES> 133,382
<RECEIVABLES> 16,486
<ALLOWANCES> 823
<INVENTORY> 6,971
<CURRENT-ASSETS> 469,952
<PP&E> 339,572
<DEPRECIATION> 27,989
<TOTAL-ASSETS> 788,727
<CURRENT-LIABILITIES> 70,481
<BONDS> 0
0
0
<COMMON> 131
<OTHER-SE> 230,367
<TOTAL-LIABILITY-AND-EQUITY> 788,727
<SALES> 19,971
<TOTAL-REVENUES> 19,971
<CGS> 33,538
<TOTAL-COSTS> 33,538
<OTHER-EXPENSES> 60,400
<LOSS-PROVISION> 12
<INTEREST-EXPENSE> 11,010
<INCOME-PRETAX> (79,939)
<INCOME-TAX> 0
<INCOME-CONTINUING> (79,939)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (79,939)
<EPS-BASIC> (0.62)
<EPS-DILUTED> (0.62)
</TABLE>
