EXHIBIT 10.12
THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID
ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.
AMENDED AND RESTATED CONVERTIBLE PROMISSORY NOTE
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$5,600,000 March 26, ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
FOR VALUE RECEIVED NORTHPOINT COMMUNICATIONS HOLDINGS, INC., a Delaware
corporation (the "Company"), and NORTHPOINT COMMUNICATIONS, INC., a Delaware
corporation ("NCI"), jointly and severally, promise to pay to VERIO INC. (the
"Holder"), or its registered assigns, the principal sum of Five Million Six
Hundred Thousand Dollars ($5,600,000), or such lesser amount as shall equal the
outstanding principal amount hereof, on the Maturity Date (as defined below).
NCI and the Holder entered into the Convertible Promissory Note (the "Original
Note") on February 5, 1999. The Original Note was issued concurrently with the
execution and delivery of that certain Joint Market Development Agreement (the
"JMD Agreement") between NCI and the Holder. The parties acknowledge that NCI
is obligated to pay to the Holder certain amounts for contributions to joint
marketing costs of NCI's offerings in certain Designated Markets (as defined in
the JMD Agreement). The Company and NCI agree, jointly and severally, that they
will, on or before July 10, 1999, pay to the Holder, promptly upon receipt of
Holder's written request, that amount of principal hereunder equal to $5,600,000
less all joint marketing contributions paid by NCI as of July 1, 1999.
The following is a statement of the rights of the Holder and the conditions to
which this Amended and Restated Convertible Promissory Note (this "Note") is
subject, and to which the Holder, by the acceptance of this Note, agrees:
1. DEFINITIONS. As used in this Note, the following capitalized terms
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have the following meanings:
1.1 "Affiliate" shall mean, as to any person or entity, a person or
entity that, directly or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such person or
entity.
1.2 "Class B Common Stock" shall mean the shares of Class B Common
Stock, $0.001 par value per share, of the Company.
1.3 "Common Stock" shall mean the shares of Common Stock, $0.001 par
value per share, of the Company.
1.4 "Company" includes the corporation initially executing this Note
and any Person which shall succeed to or assume the obligations of the Company
under this Note.
1.5 "Commission" shall mean the Securities and Exchange Commission.
1.6 "Conversion Price" shall have the meaning given in Section 5.1
hereof.
1.7 "Conversion Shares" shall mean the shares of Series D Preferred
Stock or Class B Common Stock of NorthPoint Communications Holdings, Inc. issued
to the Holder upon conversion of this Note, and any shares of Common Stock
issued upon conversion thereof.
1.8 "Event of Default" has the meaning given in Section 3 hereof.
1.9 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
1.10 "Form S-1 Registration Statement" shall mean a registration
statement on Form S-1 (or a successor form) under the Securities Act.
1.11 "Holder" shall mean the Person specified in the introductory
paragraph of this Note or any Person who shall at the time be the registered
holder of this Note.
1.12 "IPO" shall mean a firm commitment underwritten public offering
of the Corporation's Common Stock pursuant to an effective registration
statement under the Securities Act of 1933, as amended, which results in
aggregate cash proceeds to the Corporation of at least $50,000,000 (net of
underwriting discounts and commissions).
1.13 "IPO Closing" shall refer to the date on which the Company
issues Common Stock pursuant to the IPO.
1.14 "Liquidity Event" shall mean (a) the acquisition of a majority
of the capital stock or voting power of the Company by another person or entity
by means of any transaction or series of related transactions (including,
without limitation, any reorganization, merger, consolidation or purchase of
stock); or (b) a sale, exchange or other disposition of all or substantially all
of the assets of the Company, unless the Company's stockholders of record as
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constituted immediately prior to such acquisition or sale will, immediately
after such acquisition or sale (by virtue of securities issued as consideration
for the Company's acquisition or sale or otherwise) hold more than fifty percent
(50%) of the voting power of the surviving or acquiring entity in approximately
the same relative percentages after such acquisition or sale as before such
acquisition or sale.
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1.15 "Maturity Date" shall mean February 5, 2000.
1.16 "Note" shall have the meaning given in the introductory
paragraphs hereof.
1.17 "Person" shall mean and include an individual, a partnership, a
corporation (including a business trust), a joint stock company, a limited
liability company, an unincorporated association, a joint venture or other
entity or a governmental authority.
1.18 "Restricted Shares" shall have the meaning set forth in Section
8.1 hereof.
1.19 "Securities Act" shall mean the Securities Act of 1933, as
amended.
1.20 "Senior Indebtedness" shall have the meaning set forth in
Section 4 of this Note.
1.21 "Series D Preferred Stock" shall mean the shares of Series D
Preferred Stock, $0.001 par value per share, of the Company.
1.22 "Voting Stock" shall mean, any class or series of the Company's
capital stock entitled to vote in any election of directors of the Company.
2. INTEREST. The outstanding principal amount of this Note shall bear
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interest through the Maturity Date at the prime rate (as quoted by NationsBanc
from time to time), which shall be payable quarterly (that is, at the end of
each calendar quarter) in arrears.
3. EVENTS OF DEFAULT. The occurrence of any of the following shall
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constitute an "Event of Default" under this Note.
3.1 Failure to Pay. The Company or NCI shall fail to pay outstanding
principal and accrued interest on the Maturity Date; or.
3.2 Voluntary Bankruptcy or Insolvency Proceedings. The Company or
NCI shall (i) apply for or consent to the appointment of a receiver, trustee,
liquidator or custodian of itself or of all or a substantial part of its
property, (ii) be unable, or admit in writing its inability, to pay its debts
generally as they mature, (iii) make a general assignment for the benefit of any
of its creditors, (iv) be dissolved or liquidated, (v) become insolvent (as such
term may be defined or interpreted under any applicable statute), (vi) commence
a voluntary case or other proceeding seeking liquidation, reorganization or
other relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or consent to any
such relief or to the appointment of or taking possession of its property by any
official in an involuntary case or other proceeding commenced against it, or
(vii) take any action for the purpose of effecting any of the foregoing; or
3.3 Involuntary Bankruptcy or Insolvency Proceedings. Proceedings
for the appointment of a receiver, trustee, liquidator or custodian of the
Company or NCI or of all or a substantial part of the property thereof or an
involuntary case or other proceedings seeking liquidation, reorganization or
other relief with respect to the Company or NCI or the debts thereof
3
under any bankruptcy, insolvency or other similar law now or hereafter in effect
shall be commenced and an order for relief entered or such proceeding shall not
be dismissed or discharged within thirty (30) days of commencement.
4. SUBORDINATION. The indebtedness evidenced by this Note is hereby
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expressly subordinated in right of payment to any indebtedness at any time owing
by the Company or NCI to any bank, financial or lending institution or other
non-affiliated entity primarily in the business of extending credit or other
financial accommodations (collectively, "Senior Indebtedness"). So long as any
default by the Company or NCI has occurred under any instrument or agreement
evidencing any Senior Indebtedness, no payment shall be made in respect of this
Note until the Senior Indebtedness has been repaid in full in cash or other
provisions satisfactory to the holders of the Senior Indebtedness have been
made; provided, however, that the Holder may require payment of all outstanding
principal and accrued interest on the Maturity Date so long as neither the
Company nor NCI is then in payment default, and by payment hereof will not
become in payment default, under any Senior Indebtedness. In the event the
Holder obtains any payment in violation of the terms of subordination contained
herein, such funds shall be held in trust for the holders of Senior Indebtedness
and paid to them or their representatives upon request.
5. CONVERSION. The outstanding principal amount of this Note plus accrued
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interest (if any) shall convert into the Class B Common Stock or the Series D
Preferred Stock of the Company as follows:
5.1 Voluntary Conversion.
(i) Subject to Section 5.4, the entire principal amount of this
Note plus accrued interest (if any) shall be convertible, at the option of the
Holder, at any time beginning one year after the date on which a share of Series
D-1 Preferred Stock of the Company was first issued, at the office of the
Company, into the number of shares of Series D Preferred Stock equal to the
quotient of (a) such outstanding principal amount plus accrued interest (if any)
divided by (b) $22.00, so long as, after giving effect to such conversion, the
total number of shares of the Company's Voting Stock held by the Holder,
together with all of its Affiliates, shall be less than ten percent (10%) (by
voting power) of the total number of shares of Voting Stock then issued and
outstanding. No conversion of shares of Series D-1 Preferred Stock shall be
effected pursuant to this subsection to the extent that it would have the effect
of giving the Holder, together with all of its Affiliates, an aggregate number
of shares of Voting Stock equal to or greater than ten percent (10%) (by voting
power) of the total number of shares of Voting Stock then issued and
outstanding.
(ii) Subject to Section 5.4, the entire principal amount of this
Note plus accrued interest (if any) shall be convertible, at the option of the
Holder, at any time beginning one year after the date on which a share of Series
D-1 Preferred Stock was first issued, at the office of the Company, into the
number of shares of Class B Common Stock of the Company equal to the quotient of
(a) such outstanding principal amount plus accrued interest (if any) divided by
(b) the Conversion Price, determined as hereafter provided, in effect on the
date the Note is surrendered for conversion.
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(iii) The initial Conversion Price shall be $22.00 (as adjusted
from time to time pursuant to Section 5.3, the "Conversion Price"). Such initial
Conversion Price shall be subject to adjustment as set forth in Section 5.3.
5.2 Automatic Conversion.
(i) The entire outstanding principal amount of this Note plus
accrued interest (if any) shall automatically be converted into the number of
shares of Series D Preferred Stock of the Company equal to the quotient of (A)
such outstanding principal amount plus accrued interest (if any) divided by (B)
$22.00, immediately upon the earlier of (1) except as provided below in Section
5.4, the Company's sale of its Common Stock, Preferred Stock or debt securities
in a private equity or debt financing and which results in aggregate cash
proceeds to the Company of at least $50,000,000 (net of underwriting discounts
and commissions) (other than any sale by the Company to a third party of the
Company's equity or debt securities in a transaction that includes a contract
for commercial services between the Company and such third party or any sale of
Series D-1 Preferred Stock or Series D Preferred Stock by the Company) or (2)
with the consent of the Company, the date specified by written consent or
agreement of the holders of at least a majority of the then outstanding shares
of Series D-1 Preferred Stock, voting together as a class, as the date for the
conversion of all shares of Series D-1 Preferred Stock then outstanding into
shares of Series D Preferred Stock.
(ii) The entire outstanding principal amount of this Note plus
accrued interest (if any) shall automatically be converted into the number of
shares of Class B Common Stock equal to the quotient of (A) such outstanding
principal amount plus accrued interest (if any) divided by (B) the Conversion
Price at the time in effect, immediately upon, except as provided below in
Section 5.4, the Company's sale of its Common Stock in an IPO.
5.3 Conversion Price Adjustments of Preferred Stock for Certain
Dilutive Issuances, Splits and Combinations. The Conversion Price shall be
subject to adjustment from time to time as follows:
(i) ISSUANCE OF ADDITIONAL STOCK BELOW CONVERSION PRICE. If the
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Company shall issue, after the date hereof (the "Purchase Date"), any Additional
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Stock (as defined below) without consideration or for a consideration per share
less than the Conversion Price in effect immediately prior to the issuance of
such Additional Stock, the Conversion Price in effect immediately prior to each
such issuance shall automatically be adjusted as set forth in this Section
5.3(i), unless otherwise provided in this Section 5.3(i).
(A) ADJUSTMENT FORMULA. Whenever the Conversion Price is
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adjusted pursuant to this Section 5.3(i), the new Conversion Price shall be
determined by multiplying the Conversion Price then in effect by a fraction, (1)
the numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance (the "Outstanding Common") plus the number of
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shares of Common Stock that the aggregate consideration received by the Company
for such issuance would purchase at such Conversion Price; and (2) the
denominator of
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which shall be the number of shares of Outstanding Common plus the number of
shares of such Additional Stock. For purposes of the foregoing calculation, the
term "Outstanding Common" shall include shares of Common Stock deemed issued
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pursuant to Section 5.3(i)(E) below.
(B) DEFINITION OF "ADDITIONAL STOCK". For purposes of this Section
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5.3(i), "Additional Stock" shall have the meaning given such term in the Amended
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and Restated Certificate of Incorporation of the Company.
(C) NO FRACTIONAL ADJUSTMENTS. No adjustment of the Conversion Price
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shall be made in an amount less than one cent, provided that any adjustments
which are not required to be made by reason of this sentence shall be carried
forward and shall be either taken into account in any subsequent adjustment made
prior to three years from the date of the event giving rise to the adjustment
being carried forward, or shall be made at the end of three years from the date
of the event giving rise to the adjustment being carried forward.
(D) DETERMINATION OF CONSIDERATION. In the case of the issuance of
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Common Stock for cash, the consideration shall be deemed to be the amount of
cash paid therefor before deducting any reasonable discounts, commissions or
other expenses allowed, paid or incurred by the Company for any underwriting or
otherwise in connection with the issuance and sale thereof. In the case of the
issuance of Common Stock for a consideration in whole or in part other than
cash, the consideration other than cash shall be deemed to be the fair value
thereof as determined by the Board of Directors in accordance with Section
2(d)(ii) of the Company's Amended and Restated Certificate of Incorporation
irrespective of any accounting treatment.
(E) DEEMED ISSUANCES OF COMMON STOCK. In the case of the issuance
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(whether before, on or after the applicable Purchase Date) of options to
purchase or rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock or options to purchase or
rights to subscribe for such convertible or exchangeable securities, the
following provisions shall apply for all purposes of this Section 5.3(i):
(1) The aggregate maximum number of shares of Common Stock
deliverable upon exercise (assuming the satisfaction of any conditions to
exercisability, including without limitation, the passage of time, but without
taking into account potential antidilution adjustments) of such options to
purchase or rights to subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for a consideration
equal to the consideration (determined in the manner provided in Section
5.3(i)(D)), if any, received by the Company upon the issuance of such options or
rights plus the minimum exercise price provided in such options or rights
(without taking into account potential antidilution adjustments) for the Common
Stock covered thereby.
(2) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange (assuming the satisfaction of any
conditions to convertibility or exchangeability, including, without limitation,
the passage of time, but without taking into account potential antidilution
adjustments) for any such convertible or exchangeable securities or upon the
exercise of options to purchase or rights to subscribe for such convertible or
exchangeable
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securities and subsequent conversion or exchange thereof shall be deemed to have
been issued at the time such securities were issued or such options or rights
were issued and for a consideration equal to the consideration, if any, received
by the Company for any such securities and related options or rights (excluding
any cash received on account of accrued interest or accrued dividends), plus the
minimum additional consideration, if any, to be received by the Company (without
taking into account potential antidilution adjustments) upon the conversion or
exchange of such securities or the exercise of any related options or rights
(the consideration in each case to be determined in the manner provided in
Section 5.3(i)(D)).
(3) In the event of any change in the number of shares of Common
Stock deliverable or in the consideration payable to the Company upon exercise
of such options or rights or upon conversion of or in exchange for such
convertible or exchangeable securities, including, but not limited to, a change
resulting from the antidilution provisions thereof, the Conversion Price, to the
extent in any way affected by or computed using such options, rights or
securities, shall be recomputed to reflect such change, but no further
adjustment shall be made for the actual issuance of Common Stock or any payment
of such consideration upon the exercise of any such options or rights or the
conversion or exchange of such securities.
(4) Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the expiration of any
options or rights related to such convertible or exchangeable securities, the
Conversion Price, to the extent in any way affected by or computed using such
options, rights or securities or options or rights related to such securities,
shall be recomputed, but only to the extent the Company did not pay any
consideration in connection with such expiration or termination, to reflect the
issuance of only the number of shares of Common Stock (and convertible or
exchangeable securities which remain in effect) actually issued upon the
exercise of such options or rights, upon the conversion or exchange of such
securities or upon the exercise of the options or rights related to such
securities.
(5) The number of shares of Common Stock deemed issued and the
consideration deemed paid therefor pursuant to Sections 5.3(i)(E)(1) and
5.3(i)(E)(2) shall be appropriately adjusted to reflect any change, termination
or expiration of the type described in either Section 5.3(i)(E)(3) or
5.3(i)(E)(4).
(F) NO INCREASED CONVERSION PRICE. Notwithstanding any other
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provisions of this Section 5.3(i), except to the limited extent provided for in
Sections 5.3(i)(E)(3) and 5.3(i)(E)(4) and except for any adjustment pursuant to
Section 5.3(i)(G)(3) in the event of an IPO, no adjustment of the Conversion
Price pursuant to this Section 5.3(i) shall have the effect of increasing the
Conversion Price above (1) the Conversion Price in effect immediately prior to
such adjustment or (2) the initial Conversion Price specified in Section 5.1.
No readjustment pursuant to Sections 5.3(i)(E)(3) and 5.3(i)(E)(4) above shall
have the effect of increasing the Conversion Price to an amount which exceeds
the lower of (x) the Conversion Price on the original adjustment date and (y)
the Conversion Price that would have resulted from the issuance of Additional
Stock between the original adjustment date and such readjustment date.
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(G) ADDITIONAL ADJUSTMENTS.
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(1) In addition to any other adjustments that may be made to the
Conversion Price pursuant to this Section 5.3(i), in the event that, on or
before the Series D/D-1 Ratchet Cut-Off Date (as defined below), the Company
shall issue any Additional Stock without consideration or for a consideration
per share less than the Conversion Price for such series in effect immediately
prior to the issuance of such Additional Stock (other than pursuant to (I) the
IPO or (II) any sale by the Company to a third party of the Company's equity
securities in a transaction that includes a contract for commercial services
between the Company and such third party entered into in conjunction with the
sale of Series D-1 Preferred Stock or any sale of Series D-1 Preferred Stock or
Series D Preferred Stock by the Company), the Conversion Price in effect
immediately prior to each such issuance shall automatically be reduced,
concurrently with such issue, to a price (calculated to the nearest cent)
determined by dividing the aggregate consideration received by the Company for
the total number of shares of Additional Stock so issued by the total number of
shares of Additional Stock so issued. For purposes of this Section 5.3(i)(G),
the term "Series D/D-1 Ratchet Cut-Off Date" shall mean the business day next
following the earliest to occur of (i) the closing of the IPO, (ii) the closing
of a private equity financing which results in aggregate cash proceeds to the
Company of at least $50,000,000 (net of underwriting discounts and commissions)
(other than any sale by the Company to a third party of the Company's equity
securities in a transaction that includes a contract for commercial services
between the Company and such third party entered into in conjunction with the
sale of Series D-1 Preferred Stock or any sale of Series D-1 Preferred Stock or
Series D Preferred Stock by the Company), such financing occurring after the
issuance of the Series D-1 Preferred, and (iii) the closing of a Liquidity Event
other than an underwritten public offering.
(2) In addition to any other adjustments that may be made to
the Conversion Price pursuant to this Section 5.3(i), in the event that, on or
before the Series D/D-1 Ratchet Cut-Off Date (as defined above), the Company
shall close a Liquidity Event (other than an underwritten public offering
pursuant to an effective registration statement under the Securities Act) in
which the quotient (the "Liquidity Quotient") obtained by dividing (I) the
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aggregate value received by the Company or the holders of the Company's capital
stock in such Liquidity Event (excluding options or warrants outstanding at the
closing of such Liquidity Event), by (II) the total number of shares of the
Company's Common Stock outstanding on the date of such event on an as-converted
basis (excluding options or warrants outstanding at the closing of such
Liquidity Event), is less than the Conversion Price for such series in effect
immediately prior to such Liquidity Event, then and in such event, the
Conversion Price for such series in effect immediately prior to each such
issuance shall automatically be reduced, immediately prior to the closing of
such Liquidity Event and immediately prior to any conversion pursuant to Section
5.1 above, to a price (calculated to the nearest cent) equal to the Liquidity
Quotient.
(3) In addition to any other adjustments that may be made to
the Conversion Price pursuant to this Section 5.3(i), in the event of the IPO,
the Conversion Price shall automatically be adjusted, immediately prior to the
closing of such offering, and immediately prior to any conversion pursuant to
Sections 5.2, to:
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(I) in the event there has been an adjustment to the
Conversion Price pursuant to Section 5.3(i)(G)(1) or (2) prior to the adjustment
pursuant to this clause 5.3(i)(G)(3), a price equal to the lesser of (x) the
Conversion Price then in effect, or (y) the lesser of (1) the midpoint of the
price range set forth on the cover page of the prospectus for such underwritten
public offering when such prospectus is first filed with the Securities and
Exchange Commission or (2) the amount equal to ninety percent (90%) multiplied
by the price to the public of shares of the Company's Common Stock in such
initial public offering, or
(II) in the event there has been no adjustment to the
Conversion Price pursuant to Section 5.3(i)(G)(1) or (2) prior to the adjustment
pursuant to this clause 5.3(i)(G)(3), a price equal to the lesser of (x) the
midpoint of the price range set forth on the cover page of the prospectus for
such underwritten public offering when such prospectus is first filed with the
Securities and Exchange Commission or (y) the amount equal to ninety percent
(90%) multiplied by the price to the public of shares of the Company's Common
Stock in such initial public offering.
(ii) STOCK SPLITS AND DIVIDENDS. In the event the Company should at
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any time or from time to time after the date hereof fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common Stock
or the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
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by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Conversion Price shall be appropriately decreased so that the number of
shares of Common Stock issuable on conversion of each Conversion Share shall be
increased in proportion to such increase of the aggregate of shares of Common
Stock outstanding and those issuable with respect to such Common Stock
Equivalents with the number of shares issuable with respect to Common Stock
Equivalents determined from time to time in the manner provided for deemed
issuances in Section 5.3(i)(E).
(iii) REVERSE STOCK SPLITS. If the number of shares of Common Stock
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outstanding at any time after the Purchase Date is decreased by a combination of
the outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price shall be appropriately increased so that the
number of shares of Common Stock issuable on conversion of each Conversion Share
shall be decreased in proportion to such decrease in outstanding shares.
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5.4 Conversion Procedure.
(i) As soon as practicable following any conversion
pursuant to Section 5.2, written notice shall be delivered to the Holder at the
address last shown on the records of the Company for the Holder or given by the
Holder to the Company for the purpose of notice or, if no such address appears
or is given, at the place where the principal executive office of the Company is
located, notifying the Holder of the conversion to be effected and specifying
the principal amount of the Note to be converted, the date on which such
conversion is expected to occur and requesting the Holder to surrender to the
Company, in the manner and at the place designated, the Note. Notwithstanding
the foregoing, the failure of the Company to deliver any certificate or
certificates for such shares of Class B Common Stock or Series D Preferred Stock
shall not affect the effectiveness or validity of any conversion of this Note
pursuant to Section 5.1 or 5.2 hereof
(ii) Upon conversion of this Note pursuant to this Section 5,
the Holder shall surrender this Note, duly endorsed, at the principal office of
the Company. At its expense, the Company shall, as soon as practicable
thereafter, issue and deliver to the Holder at such principal office a
certificate or certificates for the number of Conversion Shares to which the
Holder shall be entitled upon such conversion (bearing the legends set forth in
Section 8 hereof and any other legends required by applicable state and federal
securities laws in the opinion of counsel to the Company), together with any
other securities and property to which the Holder is entitled upon such
conversion under the terms of this Note, including a check payable to the Holder
for any cash amounts payable as described in Section 5.5.
(iii) Any conversion of this Note shall be deemed to have been
made immediately prior to the conversion pursuant to Section 5.1 or 5.2, and on
and after such date the Persons entitled to receive the shares issuable upon
such conversion shall be treated for all purposes as the record holders of such
shares. If the conversion is in connection with an underwritten offering of
securities registered pursuant to the Securities Act of 1933, as amended, the
conversion may, at the option of the Holder, be conditioned upon the closing
with the underwriters of the sale of securities pursuant to such offering, in
which event the Holder shall not be deemed to have converted the principal
amount of this Note until immediately prior to the closing of such sale of
securities.
5.5 Fractional Shares; Effect of Conversion. No fractional shares
shall be issued upon conversion of this Note. In lieu of the Company issuing
any fractional shares to the Holder upon the conversion of this Note, the
Company shall pay to the Holder an amount equal to the product obtained by
multiplying the Conversion Price, by the fraction of a share not issued pursuant
to the previous sentence. Upon conversion of this Note in full and the payment
of the amounts specified in this Section 5.5, the Company shall be forever
released from all its obligations and liabilities under this Note.
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6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
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represents and warrants to the Holder as follows:
6.1 Organization, Good Standing and Qualifications. Each of the
Company and its subsidiaries has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction of its
incorporation, has full corporate power and authority to own or lease its
properties and conduct its business as being conducted, and is duly qualified as
a foreign corporation and in good standing in all jurisdictions in which the
character of the property owned or leased or the nature of the business
transacted by it makes qualification necessary except where the failure to be so
qualified would not have a material adverse effect on the business, properties,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.
6.2 Capitalization. The authorized capital stock of the Company
consists of 125,000,000 shares of Common Stock, of which 11,162,113 shares are
issued and outstanding, and of which 8,000,000 shares are designated as Class B
Common Stock, none of which are outstanding, and 45,000,000 shares of Preferred
Stock, $0.001 par value, of which 17,563,187 shares are designated as Series B
Preferred Stock, 16,450,721 of which are outstanding, 18,198,413 shares are
designated as Series C Preferred Stock, 18,009,405 of which are outstanding,
3,640,000 shares are designated as Series D Preferred Stock, none of which are
outstanding, and 3,640,000 shares are designated as Series D-1 Preferred Stock,
113,636 of which are outstanding. All issued and outstanding shares have been
duly authorized and validly issued, and are fully paid and nonassessable. The
Company has reserved 17,563,187 shares of Common Stock for issuance upon
conversion of the Series B Preferred Stock, 18,198,413 shares of Common Stock
for issuance upon conversion of the Series C Preferred Stock, 3,640,000 shares
of Series D Preferred Stock for issuance upon conversion of the Series D-1
Preferred Stock, 3,640,000 shares of Common Stock for issuance upon conversion
of the Series D Preferred Stock, 3,640,000 shares of Class B Common Stock for
issuance upon conversion of the Series D-1 Preferred Stock, and 3,640,000 shares
of Common Stock for issuance upon conversion of the Class B Common Stock. All
outstanding securities of the Company were issued in compliance with applicable
federal and state securities laws. The Company has never adopted or maintained
any stock option plan or other plan providing for equity compensation of any
person. The Company has issued warrants to purchase 1,952,387 shares of Common
Stock, all of which are outstanding. Except as described above or as set forth
in the Fifth Amended and Restated Rights Agreement of even date herewith (the
"Rights Agreement"), there are no preemptive rights, options or warrants or
other conversion privileges or rights presently outstanding to purchase any
capital stock of the Company.
6.3 Authorization. All corporate action on the part of the Company,
its officers, directors and stockholders necessary for the authorization,
execution, delivery and performance by the Company of this Note, the issuance of
the Conversion Shares and the performance of the Company's other obligations
hereunder has been taken. This Note, when executed and delivered by the
Company, shall constitute a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, subject to
bankruptcy, insolvency, receivership, moratorium, reorganization and similar
laws addressing the relief of debtors and rules of law governing specific
11
performance, injunctive relief or other equitable remedies. This Note and the
Conversion Shares, when issued in compliance with the provisions of this Note,
will be validly issued, fully paid and nonassessable, and will be free of any
liens or encumbrances created by the Company; provided, however, that the
securities shall be subject to restrictions on transfer under this Note and may
be subject to restrictions on transfer under state and/or federal securities
laws as set forth herein or as otherwise required at the time a transfer is
proposed.
6.4 Governmental Consents. No consent, approval or authorization of
or designation, declaration or filing with any governmental authority on the
part of the Company is required in connection with the valid execution and
delivery of this Note, or the issuance of the Conversion Shares hereunder, or
the consummation of any other transaction contemplated hereby, except
qualification (or taking such action as is necessary to secure an exemption from
qualification, if available) of the offer and sale of this Note and the
Conversion Shares under the California Corporate Securities Law of 1968, as
amended, and other applicable states securities laws, which filings and
qualifications, if required, will be accomplished in a timely manner.
6.5 No Conflict. The execution, delivery and performance of and
compliance with this Note, and the issuance of the Conversion Shares hereunder,
will not (i) conflict with, or result in a breach of or a default under, the
Certificate of Incorporation or the Bylaws of the Company or NCI, (ii) conflict
with, or result in a breach of or a default under, or accelerate the performance
provided by, or require any consent or waiver under, or give any third party any
right to terminate, any material agreement or other material instrument to which
the Company or NCI is a party or by which any of its properties may be bound,
(iii) to the Company's or NCI's knowledge after reasonable investigation,
violate any federal or state law, rule or regulation applicable to the Company
or NCI, or (iv) constitute an event which, with the lapse of time or action by a
third party, could result in a default under any of such Certificate of
Incorporation, Bylaws, or material agreements or instruments of the Company or
NCI.
7. REPRESENTATIONS AND WARRANTIES OF HOLDER. The Holder hereby represents
----------------------------------------
and warrants to the Company and NCI as follows:
7.1 Experience. It has sufficient knowledge and experience in
investments of this type that it is capable of understanding and evaluating the
merits and risks of this investment and has the ability to bear a complete loss
of its investment. It is an "accredited investor" within the meaning of Rule
501 of Regulation D promulgated under the Securities Act.
7.2 Investment. It is acquiring the Note and the capital stock
issuable upon conversion thereof for investment for its own account and not with
the view to, or for resale in connection with, any distribution thereof. It
understands that the Note and the capital stock issuable upon conversion thereof
have not been registered under the Securities Act or qualified under the
California Corporate Securities Law of 1968, as amended, in reliance on specific
exemptions from the registration and qualification provisions thereunder, which
depend upon, among other things, the bona fide nature of the investment intent
as expressed herein.
12
7.3 Rule 144. It acknowledges that the Note and the capital stock
issuable upon conversion thereof must be held indefinitely unless subsequently
registered under the Securities Act or an exemption from such registration is
available. It is aware of the provisions of Rule 144 promulgated under the
Securities Act which permit limited resale of securities purchased in a private
placement subject to the satisfaction of certain conditions, including, among
other things, the existence of a public market for the securities, the
availability of certain current public information about the Company, the resale
occurring not less than one year after a party has purchased and paid for the
security to be sold, the sale being through a "broker's transaction" or in
transactions directly with a "market maker" (as provided by Rule 144(f)) and the
number of securities being sold during any three-month period not exceeding
specified limitations. It is further aware that Rule 144(k) permits persons who
have not been affiliates (as defined in Rule 144(a)) of the Company for at least
three months and who have beneficially owned their securities for at least two
years after full payment for such securities to sell such securities without
regard to the current public information, manner of sale and volume limitations
described above.
7.4 No Public Market. It understands that no public market now
exists for any of the securities of the Company and no assurances can be given
that such public market will ever exist.
7.5 Access to Data. It has had an opportunity to discuss the
Company's business, management and objectives with the Company's management. It
understands that its discussions, as well as the written information given to it
by the Company were intended to describe the aspects of the Company's business
and prospects which the Company believes to be material but were not necessarily
a thorough or exhaustive description.
8. RESTRICTIONS ON TRANSFER.
------------------------
8.1 Legend. Each certificate representing the Conversion Shares,
and any other securities issued in respect of the foregoing upon any stock
split, stock dividend, recapitalization, merger, consolidation or similar event
(the "Restricted Shares"), shall be stamped or otherwise imprinted with legends
substantially in the following form (in addition to any legend required under
applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933. SUCH SHARES MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN
THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE COMPANY RECEIVES
AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY)
REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS
OF SAID ACT.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO, AND
MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH, THE TERMS
13
OF CERTAIN AGREEMENTS AMONG THE COMPANY, THE STOCKHOLDER AND
CERTAIN OTHER HOLDERS OF THE COMPANY'S STOCK, WHICH INCLUDE,
WITHOUT LIMITATION, OBLIGATIONS OF RIGHTS OF FIRST OFFER,
RESTRICTIONS ON TRANSFER AND ACQUISITION OF ADDITIONAL SECURITIES
OF THE COMPANY, COPIES OF WHICH ARE ON FILE WITH THE SECRETARY OF
THE COMPANY.
Upon request of a holder of such a certificate, the Company shall remove the
foregoing legend from the certificate or issue to such holder a new certificate
therefor free of any transfer legend, if, with such request, the Company shall
have received an opinion of counsel to the Holder who shall be reasonably
satisfactory to the Company, addressed to the Company, to the effect that any
transfer by the holder of the securities evidenced by such certificate will not
violate the Securities Act and applicable state securities laws, unless any such
transfer legend may be removed pursuant to Rule 144(k) or any successor rule, in
which case no such opinion shall be required.
8.2 Transfer Restrictions. The Holder shall not, directly or
indirectly, sell or transfer any Conversion Shares or any Common Stock issued
upon conversion thereof for a period of one year following the earlier to occur
of (i) the date hereof or (ii) in the event the Company completes an IPO, the
closing date of the IPO, except pursuant to a sale of all the capital stock of
the Company or a merger or consolidation in which the Company is acquired, or
pursuant to a liquidation of the Company. However, the Holder may sell or
transfer the Conversion Shares or such Common Stock to (i) any Affiliate of the
Holder during such one year period or (ii) any third party after such one year
period, provided that such Affiliate or third party, as the case may be, agrees
in writing to be bound by the obligations of this Note and the restrictions on
transfer, including without the limitation, the "lock-up" agreement, set forth
in the Rights Agreement. No such transfer shall be effective unless the
transferee or assignee assumes in writing the obligations of the under this
Agreement.
8.3 Standstill. For a period of three years after the date hereof,
Holder shall not, and shall cause each of its Affiliates to not, acquire
beneficial ownership (as such term is defined in Rule 13d-3 of the Securities
Exchange Act of 1934, as amended) of any securities of the Company in addition
to the Conversion Shares or any Common Stock issued upon conversion thereof,
which would result in the aggregate beneficial ownership of the Holder and its
Affiliates of Voting Stock of the Company equaling or exceeding 10% of the
outstanding Voting Stock of the Company. The Holder or any of its Affiliates
shall not purchase any securities of the Company without having given thirty
(30) days prior written notice to the Company or without having received the
prior written consent of the Company. Upon notice thereof, the Company shall
inform the Holder whether such purchases cause the aggregate beneficial
ownership of the Holder and its Affiliates to equal or exceed ten percent (10%)
of the outstanding Voting Stock of the Company.
9. MARKET STANDOFF. The Holder agrees, if requested by the Company and
---------------
an underwriter of Common Stock (or other securities) of the Company in
connection with the IPO, not to sell or otherwise transfer or dispose of any
Common Stock (or other securities) of the Company held by the Holder during a
period of time determined by the Company and its underwriters (not to exceed one
14
hundred eighty (180) days following the effective date of the registration
statement of the Company filed under the Securities Act relating to such IPO),
provided that all officers and directors of the Company who then hold Common
Stock (or other securities) of the Company, and third parties with commercial or
strategic relationships with the Company involving investments similar to the
one described in this Note, enter into similar agreements.
10. CERTAIN COVENANTS OF THE COMPANY.
--------------------------------
10.1 Review of Form S-1 Registration Statement. The Holder shall be
given a reasonable opportunity to review the terms and disclosure contained in a
Form S-1 Registration Statement applicable to the Company's IPO (including any
amendments thereto), to the extent such terms and disclosure pertain to the
Holder or the Company's relationship with the Holder, and the Company shall
provide the Holder with copies of the Form S-1 Registration Statement (including
any amendments thereto) and give the Holder reasonable opportunity to review
such terms and disclosure contained therein. The Company shall give the Holder
reasonable notice of the anticipated date of the IPO Closing.
10.2 Review of Private Placement Memorandum. The Holder shall be
given a reasonable opportunity to review the terms and disclosure contained in
any private placement memorandum or similar disclosure document applicable to
the Company's sale of its Common Stock, Preferred Stock or debt securities in a
private equity or debt financing and which results in aggregate cash proceeds to
the Company of at least $50,000,000 (net of underwriting discounts and
commissions) (other than any sale by the Company to a third party of the
Company's equity or debt securities in a transaction that includes a contract
for commercial services between the Company and such third party or any sale of
Series D-1 Preferred Stock or Series D Preferred Stock by the Company), to the
extent such terms and disclosure pertain to the Holder or the Company's
relationship with the Holder, and the Company shall provide the Holder with
copies of such document(s) and give the Holder a reasonable opportunity to
review such terms and conditions. The Company shall give the Holder reasonable
notice of the anticipated date of the closing of any such financing.
10.3 Notice of Certain Events. In addition to any other notice
provisions herein, if, at any time, there shall be:
(i) any reclassification or recapitalization of the Common
Stock;
(ii) any consolidation or merger of the Company or NCI with or
into any Person (including a consolidation or merger that would result in the
voting securities of the Company or NCI outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or such surviving entity's
parent) at least fifty percent (50%) of the total voting power represented by
the voting securities of the Company or NCI, respectively, or such surviving
entity or such surviving entity's parent outstanding immediately after such
consolidation or merger));
15
(iii) a voluntary or involuntary bankruptcy petition or similar
filing involving the Company or NCI; or
(iv) a voluntary or involuntary dissolution, liquidation or
winding up of the Company or NCI;
then, in any one or more case, the Company shall deliver written notice to the
Holder at the address last shown on the records of the Company for the Holder or
given by the Holder to the Company for the purpose of notice or, if no such
address appears or is given, at the place where the principal executive office
of the Company is located, notifying the Holder of the event described above and
specifying the date of which the holders of Common Stock shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reclassification, recapitalization, merger, sale, bankruptcy, dissolution,
liquidation or winding up, as the case may be. The Holder shall receive notice
pursuant to this Section 10.3 as soon as practicable prior to the event
described above, but in no event less than twenty (20) days prior to (i) the
date on which the event described above is to occur or (ii) the record date for
determining rights to vote with respect to such reclassification,
recapitalization, merger, sale, bankruptcy, dissolution, liquidation or winding
up, as the case may be, whichever is sooner.
10.4 Periodic Reports. For a period of five years from the date
hereof, upon the Holder's written request and representation to the Company that
the documents described below are not publicly available through electronic
means, the Company will furnish to the Holder, for so long as the Holder
continues to own Conversion Shares or any Common Stock issued upon conversion
thereof, copies of the Company's Forms 10-K, 10-Q and Annual Report to
Shareholders, promptly after such documents are filed with the SEC, or in lieu
of such reports, unaudited quarterly and audited annual financial statements of
the Company, promptly after completion.
11. BINDING EFFECT. Subject to the restrictions on transfer described
--------------
in Section 13 below, this Note shall be binding upon the Company, NCI and the
Holder and their respective permitted successors and assigns.
12. WAIVER AND AMENDMENT. Any provision of this Note may be amended,
--------------------
waived or modified upon the written consent of the Company, NCI and the Holder.
13. ASSIGNMENT. Neither this Note nor any of the rights, interests or
----------
obligations hereunder, nor any part hereof or thereof, may be transferred or
assigned, by operation of law or otherwise, by the Holder without the prior
written consent of the Company and NCI, which such consent may not be
unreasonably withheld.
14. NOTICES. Except as otherwise provided herein, all notices required
-------
or permitted hereunder shall be in writing and shall be deemed effectively
given: (i) upon personal delivery to the party to be notified; (ii) five (5)
days after having been sent by registered or certified mail, return receipt
requested, postage prepaid; or (iii) one (1) day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt. All
16
communications shall be sent to the parties hereto at the respective addresses
set forth below, or as notified by such party from time to time at least ten
(10) days prior to the effectiveness of such notice:
If to the Company or NCI NorthPoint Communications Holdings, Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇
With a copy to: ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
--------------
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
If to Holder: Verio Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
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▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
15. EXPENSES; WAIVERS. If action is instituted to collect this Note,
-----------------
the Company and NCI promise to pay all costs and expenses, including, without
limitation, reasonable attorneys' fees and costs, incurred in connection with
such action. The Company and NCI hereby waive notice of default, presentment or
demand for payment, protest or notice of nonpayment or dishonor and all other
notices or demands relative to this instrument.
16. GOVERNING LAW. This Note is to be construed in accordance with and
-------------
governed by the laws of the State of California (as permitted by Section 1646.5
of the California Civil Code, or any similar successor provision), without
giving effect to any choice of law rule that would cause the application of the
laws of any jurisdiction other than the State of California to the rights and
duties of the parties.
17. SEVERABILITY. If one or more provisions of this Note are held to be
------------
unenforceable under applicable law, such provision(s) shall be excluded from
this Note and the balance of the Note shall be interpreted as if such
provision(s) were so excluded and shall be enforceable in accordance with its
terms.
18. CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES
-----------------------------------
WHICH ARE THE SUBJECT OF THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION
OF THIS NOTE HAVE NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF
THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
17
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS AN EXEMPTION FROM SUCH
QUALIFICATION IS AVAILABLE. THE RIGHTS OF ALL PARTIES TO THIS NOTE ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, OR SUCH EXEMPTION BEING
AVAILABLE.
19. COUNTERPARTS. This Note may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
20. SUBSEQUENT TRANSACTIONS. The Company covenants until the completion
-----------------------
of an IPO not to issue or sell any shares of Series D Preferred Stock or Series
D-1 Preferred Stock to any investor at a more favorable price or upon more
favorable terms (including rights, preferences, privileges and restrictions)
than those set forth in the Company's Amended and Restated Certificate of
Incorporation, this Note and the Rights Agreement without the prior written
consent of the Holder. Notwithstanding the foregoing, the Company expressly
reserves the right to sell shares of its Series D Preferred Stock without the
prior written consent of the Holder provided that such shares shall not have
been sold or issued by the Company at a more favorable price or on more
favorable terms than those which are reflected in this Note, the Rights
Agreement and the Company's Amended and Restated Certificate of Incorporation;
provided that the Holder expressly acknowledges that the Series D Preferred
Stock, unlike the Series D-1 Preferred Stock, has certain voting rights as set
forth in the Company's Amended and Restated Certificate of Incorporation and
that any issuance of Series D Preferred Stock by the Company will not be
considered to be on more favorable terms solely because of the existence of such
voting rights.
21. APPLICABILITY OF STANDSTILL PROVISION AND VOTING AGREEMENT TO NON-
-----------------------------------------------------------------
AFFILIATE PURCHASERS. Without changing the respective construction of Section
--------------------
8.3 of this Note, such section shall be inapplicable to non-Affiliate purchasers
(with respect to the transferring Holder) who acquire any shares of Common Stock
from the Holder.
18
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE EXECUTED THIS NOTE AS OF THE
DATE SET FORTH IN THE FIRST PARAGRAPH HEREOF.
THE COMPANY NorthPoint Communications
Holdings, Inc.
a Delaware corporation
By: _______________________
Name:__________________
Title:_________________
NCI NorthPoint Communications,
Inc.
a Delaware corporation
By:________________________
Name:__________________
Title:_________________
The Holder Verio Inc.
a Delaware corporation
By: _______________________
Name:__________________
Title:_________________