NORTHPOINT COMMUNICATIONS GROUP INC, 424B4, 2000-05-12

NORTHPOINT COMMUNICATIONS GROUP INC
424B4, 2000-05-12
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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FILED PURSUANT TO RULE 424(b)(4)
REGISTRATION NO. 333-35952

PROSPECTUS

NORTHPOINT COMMUNICATIONS GROUP, INC.

OFFER TO EXCHANGE

all outstanding
12 7/8% Senior Notes due 2010
for
12 7/8% Senior Notes due 2010

Terms of the Exchange Offer

. The exchange offer expires at 5:00 p.m., New York City time, on June 13,
2000, unless extended.

. We will exchange all outstanding notes that are validly tendered and not
validly withdrawn for an equal principal amount of a new series of notes
which are registered under the Securities Act.

. The exchange offer is not subject to any conditions other than that it
not violate applicable law or any applicable interpretation of the staff
of the SEC.

. You may withdraw tenders of outstanding notes at any time before the
exchange offer expires.

. The exchange of notes should not be a taxable event for U.S. federal
income tax purposes.

. We will not receive any proceeds from the exchange offer.

. The terms of the new series of notes are substantially identical to the
outstanding notes, except for transfer restrictions and registration
rights relating to the outstanding notes.

. The new series of notes will not trade on any established exchange.

. You may tender outstanding notes only in denominations of $1,000 and
multiples of $1,000.

. Our affiliates may not participate in the exchange offer.

Please refer to "Risk Factors" beginning on page 10 of this document for a
description of the risks you should consider when evaluating this investment.

We are not making this exchange offer in any state where it is not
permitted.

Neither the Securities and Exchange Commission nor any state securities
commission has approved of the notes or determined that this prospectus is
accurate or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is May 12, 2000.
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We have not authorized any dealer, salesperson or other person to give any
information or to make any representation other than those contained in this
prospectus. You must not rely upon any information or representation not
contained in this prospectus as if we had authorized it. This prospectus does
not constitute an offer to sell or the solicitation of an offer to buy any
securities other than the registered securities to which it relates, nor does
this prospectus constitute an offer to sell or the solicitation of an offer to
buy securities in any jurisdiction to any person to whom it is unlawful to make
such offer or solicitation in such jurisdiction.

The information in this prospectus is current only as of the date on its
cover, and may change after that date. For any time after the cover date of
this prospectus, we do not represent that our affairs are the same as described
or that the information in this prospectus is correct, nor do we imply those
things by delivering this prospectus to you.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission, or SEC, a
registration statement on Form S-4 covering the new notes to be issued in the
exchange offer. This prospectus does not contain all of the information
contained in the registration statement. Statements contained in this
prospectus concerning the provisions of any document are not necessarily
complete. You should refer to the copy of these documents filed as an exhibit
to the registration statement or otherwise filed by us with the SEC for a more
complete understanding of the matter involved. Each statement concerning these
documents is qualified in its entirety by reference to the copy of the document
filed by us with the SEC.

We are subject to the informational requirements of the Securities Exchange
Act of 1934, and in accordance with the requirements of the Exchange Act, we
file annual and quarterly reports, proxy statements and other information with
the SEC. You can inspect and copy reports and other information filed by
NorthPoint with the SEC at the SEC's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. You may also obtain information on the operation
of the Public Reference Room by calling the SEC at 1-800-SEC-0300. The SEC also
maintains an Internet site at http://www.sec.gov that contains reports, proxy
and information statements regarding issuers, including NorthPoint, that file
electronically with the SEC. Information concerning us is also available for
inspection at the offices of the Nasdaq National Market, Reports Section, 1735
K Street, N.W., Washington, D.C. 20006.

DOCUMENTS INCORPORATED BY REFERENCE

Our Annual Report on Form 10-K for the fiscal year ended December 31, 1999,
filed with the SEC on March 30, 2000, is incorporated by reference in this
prospectus.

All documents filed by us with the SEC pursuant to Sections 13(a) and (c),
14, or 15(d) of the Exchange Act after the date of this prospectus and prior to
the termination of the offering of the new notes offered pursuant to this
prospectus shall be deemed to be incorporated by reference in this prospectus
and to be a part of this prospectus from the date when we file such documents.
Any statement contained in the document incorporated or deemed to be
incorporated by reference in this prospectus shall be deemed to modified or
superseded for purposes of this prospectus to the extent that a statement
contained in this prospectus or in any other subsequently filed document which
also is or is deemed to be incorporated by reference in this prospectus
modified or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this prospectus.

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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements under the captions "Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," and elsewhere in this prospectus are "forward-
looking statements." These forward-looking statements include, but are not
limited to, statements about our plans, objectives, expectations, intentions
and assumptions and other statements contained in the prospectus that are not
historical facts. When used in this prospectus, the words "expect,"
"anticipate," "intend," "plan," "believe," "seek," "estimate" and similar
expressions are generally intended to identify forward-looking statements.
Because these forward-looking statements involve risks and uncertainties,
including those described in this "Risk Factors" section, actual results may
differ materially from those expressed or implied by these forward-looking
statements. We do not intend to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.

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SUMMARY

This summary highlights information contained elsewhere in this registration
statement. You should read the entire registration statement, including "Risk
Factors" beginning on page 10, carefully.

Overview of Our Business

We are a national provider of high speed, local data network services. Our
networks use digital subscriber line, or DSL, technology to 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. In the near future, we expect to be offering
network and data transport services optimized for residential end users.

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 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, 1999, we had secured and purchased 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, 1999, we
had connected over 41,300 of their end users to our networks. We have entered
into strategic and commercial relationships with Microsoft, Tandy, Yahoo!,
Excite@Home, SBC/Pacific Bell Internet Services, Intel, Verio, and Concentric
Network, among others. 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.

NorthPoint was founded in May 1997 by six former MFS/WorldCom executives who
developed and implemented the first commercial DSL service. Since our founding,
we have raised more than $533 million of equity, including $414 million in our
initial public offering, which was completed in May 1999. We also have a
secured credit facility that provides commitments to us for up to $250 million
of capital, subject to certain conditions. In February 2000, we issued the
notes in the aggregate principal amount of $400 million. We believe that our
current capital resources, together with the proceeds of this offering, will be
sufficient for the funding and working capital requirements needed for the
deployment of our networks in our 60 targeted markets.

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region of Germany. The new company, VersaPoint, will initially offer wholesale
DSL service in The Netherlands, Germany and Belgium (as the local loop is
unbundled), and then in other markets as they open in the European Union.

Our Solutions Meet The Growing Demand For Data Transport

Data-intensive computing applications such as Internet access are becoming
increasingly commonplace. Forrester Research projects that the total market for
data networking services and Internet access will grow from $6.2 billion in
1997 to approximately $49.7 billion by 2002, of which approximately $27.9
billion will be generated from services to businesses. We believe that local
data transport solutions commonly used today by our target end users to connect
to the Internet and for other data applications are inadequate because they are
either too slow or too expensive, or both.

Our local networks provide end users with:

. a range of fast data transport options, each of which has a combination
of price and performance characteristics superior to traditional
options;

. the ability to upgrade data transmission speed without adding hardware;

. dedicated and continuous connections to the Internet or other data
services;

. reliable performance over our continuously monitored network; and

. secure transport of sensitive business data.

Our networks and services offer a number of advantages to network service
providers:

. access to end users in a wide geographic area through a single point of
interconnection in each market, enabling accelerated market entry with
minimal capital expenditures;

. an electronic interface to our national pre-qualification, order entry,
customer support, provisioning, accounting and billing systems;

. assured data transport speeds and service level guarantees; and

. monitoring of our entire network from our control center.

Our Competitive Strengths

. We Are Rapidly Expanding to 60 Markets. We have initially targeted those
central offices in our 60 metropolitan areas with the highest density of
small- and medium-sized businesses. By focusing on these dense business
districts, we believe we can secure scarce central office space, launch
services in new markets more rapidly, maximize the economic return from
our capital expenditures and enable our customers to address a
significant portion of their target end users in each geographic market
quickly. We are currently operational in more than 1,260 central
offices.

. Our Networks Are Designed for Business Needs. Our DSL services are well-
suited for business applications because they provide fast data
transmission at symmetrical speeds to and from the end user. As an end
user's needs evolve, we can remotely upgrade the speed of the connection
with no additional capital cost. Business end users expect their
connections to be reliable and their data to be secure. Our networks
provide these features.

. Our Network Architecture Uses Capital Efficiently. In deploying our
networks, we do not rebuild elements such as the copper wire
infrastructure that we can lease inexpensively. Instead, we purchase
only the equipment that converts these elements into sophisticated data
networks. We are also able to

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achieve substantial cost savings because our networks in each
metropolitan area are based upon a common blueprint. A significant
portion of our capital expenditures are also "success-based" because we
incur them only as we add customers or end users. We can extend the
coverage of our network within our markets as demand warrants by adding
central offices with relatively modest incremental capital.

. Selling to Network Service Providers Enables Rapid Utilization of Our
Network and Growth. There are thousands of network service providers who
are potential NorthPoint customers, more than 200 of whom are already
our customers. Many of these network service providers have substantial
sales and marketing organizations. We expect that our customers will be
able to sell our services to more end users than we could on our own,
helping us to defray our fixed costs more rapidly.

The Exchange Offer

Old Notes................... On February 8, 2000, we completed the offering of
$400,000,000 aggregate principal amount of our 12
7/8% Senior Notes due 2010 to Goldman, Sachs &
Co., Morgan Stanley & Co. Incorporated, CIBC
World Markets Corp. and Credit Suisse First
Boston Corporation, as initial purchasers. The
initial purchasers sold the old notes to
"qualified institutional buyers" as defined in
Rule 144A under the Securities Act. We have filed
the registration statement of which this
prospectus is a part to comply with a
registration rights agreement between us and the
initial purchasers.

The Exchange Offer.......... We are offering to exchange $1,000 in principal
amount of new notes for each $1,000 in principal
amount of old notes. The new notes are
substantially identical to the old notes, except
that:

. the new notes will be freely transferable,
other than as described in this prospectus;

. we will register the new notes under the
Securities Act, and, therefore, the new notes
will not bear legends restricting their
transfer;

. holders of the new notes will not be entitled
to certain rights of the holders of the old
notes under the registration rights agreement;
and

. the new notes will not contain any provisions
regarding the payment of additional interest.

Based on interpretations by the SEC's staff in
no-action letters issued to other parties, we
believe that holders of new notes issued in the
exchange offer may transfer the new notes without
complying with the registration and prospectus
delivery requirements of the Securities Act if
the holders:

. acquired the new notes in the ordinary course
of the holders' business;

. are not engaged in, and do not intend to
engage in, and have no arrangement or
understanding with any person to participate
in, a distribution of the new notes;

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. are not affiliates of ours within the meaning
of Rule 405 under the Securities Act;

. are not broker-dealers who acquired original
notes directly from us; and

. are not broker-dealers who acquired original
notes as a result of market-making or other
trading activities.

If any of these conditions is not satisfied and
you transfer any new note without delivering a
proper prospectus or without qualifying for a
registration exemption, you may incur liability
under the Securities Act.

Each broker-dealer that receives new notes for
its own account in exchange for old notes, which
it acquired as a result of market-making
activities or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with any resale of those new notes.
See "Plan of Distribution."

Expiration Date............. The exchange offer will expire at 5:00 p.m., New
York City time, on June 13, 2000, unless
extended, in which case the expiration date will
mean the latest date and time to which we extend
the exchange offer.

Conditions to the Exchange
Offer....................... The exchange offer is not conditioned upon any
minimum principal amount of old notes being
tendered for exchange. Our obligation to complete
the exchange offer is subject to various
conditions. See "The Exchange Offer--Conditions."
We reserve the right to terminate or amend the
exchange offer at any time before the expiration
date if various specified events occur.
Procedures for Tendering
Old Notes................... See "The Exchange Offer--Procedures for
Tendering" and "--Guaranteed Delivery
Procedures."

Withdrawal Rights........... You may withdraw the tender of your old notes at
any time before 5:00 p.m., New York City time, on
the expiration date, by complying with the
procedures for withdrawal described in this
prospectus under the heading "The Exchange
Offer--Withdrawal of Tenders."

Material U.S. Federal
Income Tax
Considerations............. The exchange of notes should not be a taxable
event for United States federal income tax
purposes. For a discussion of the material
federal income tax consequences relating to the
exchange of notes, see "Material United States
Federal Income Tax Considerations."

Exchange Agent.............. The Bank of New York, the trustee under the
indenture governing the old notes, is serving as
the exchange agent.

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Consequences of Failure to
Exchange Old Notes......... If the exchange offer is completed on the terms
and within the period contemplated by this
prospectus, holders of the old notes will have no
further registration or other rights under the
registration rights agreement, except under
limited circumstances. See "The Exchange Offer--
Shelf Registration Statement" and "--Additional
Interest."

Holders of the old notes who do not tender their
old notes will continue to hold those old notes.
All untendered, and tendered but unaccepted, old
notes will continue to be subject to the
restrictions on transfer provided for in the old
notes and the indenture under which the old notes
have been and the new notes are being issued. To
the extent that old notes are tendered and
accepted in the exchange offer, the trading
market, if any, for the old notes could be
adversely affected. See "The Exchange Offer--
Consequences of Failure to Exchange Old Notes."

Additional Interest......... If we do not comply with our obligations under
the registration rights agreement, we will be
required to pay additional interest to the
holders of the notes.

You will not have any remedy other than the
additional interest if we fail to meet our
obligations under the registration rights
agreement. If the exchange offer is completed on
the terms and within the period contemplated in
this prospectus, no additional interest will be
payable. See "The Exchange Offer--Additional
Interest" and "Description of the Notes--
Registration Rights; Additional Interest."

We explain the exchange offer in greater detail beginning on page 26.

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Terms of the New Notes

The form and terms of the new notes are the same as the form and terms of
the old notes, except that the new notes will be registered under the
Securities Act and, therefore, the new notes will not be subject to the
transfer restrictions, registration rights and provisions providing for an
increase in the interest rate applicable to the old notes. The new notes will
evidence the same debt as the old notes and both the old notes and the new
notes, collectively, the "notes", are governed by the same indenture.

New Notes Offered........... $400,000,000 million principal amount of 12 7/8%
senior notes due 2010.

Issuer...................... NorthPoint Communications Group, Inc.

Maturity Date............... February 15, 2010.

Interest.................... Interest on the new notes will accrue from
February 8, 2000 at the rate of 12 7/8% per year,
payable semi-annually on each February 15 and
August 15, beginning on August 15, 2000.

Ranking..................... The new notes are our senior obligations and will
have the same ranking as the old notes. The new
notes will rank equal in right of payment with
all of our existing and future senior debt and
will rank senior in right of payment to any of
our future subordinated debt. The new notes will
be effectively subordinated to any of our secured
debt and to our subsidiaries' existing and future
debt and other liabilities (including
subordinated debt and trade payables).

As of December 31, 1999, on a pro forma basis, we
had approximately $487.7 million of senior debt
outstanding.

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Optional Redemption......... On or after February 15, 2005, we may redeem some
or all of the new notes at any time at the
redemption prices listed in the section
"Description of the Notes" under the heading
"Optional Redemption." Before February 15, 2003,
we may redeem up to 35% of the new notes with the
proceeds of certain issues of equity in our
company at 112.875% of the principal amount, plus
accrued interest.

Mandatory Offer to
Repurchase.................. If we sell certain assets or experience specific
kinds of changes of control, we must offer to
repurchase the notes at the prices listed in the
section "Description of the Notes" under the
heading "Repurchase at the Option of Holders."

Covenants................... The indenture for the new notes contains
covenants for your benefit which, subject to
important exceptions, restrict our ability and
the ability of our subsidiaries to do various
things, including:

. pay dividends on stock or purchase stock;

. make investments;

. borrow money; and

. use assets as security in other transactions;
and

. sell certain assets or merge with or into
other companies.

The indenture allows us to amend these and other
covenants by a vote of holders of a majority in
aggregate principal amount of the notes. Also,
holders of a majority in aggregate principal
amount of the notes may waive our compliance with
the restrictive covenants.

Registration Rights......... Holders of the new notes (other than as set forth
below) are not entitled to any registration
rights with respect to the new notes. Pursuant to
the registration rights agreement among the
initial purchasers of the old notes and us, we
agreed to file an exchange offer registration
statement with respect to an offer to exchange
the old notes for the new notes. The registration
statement of which this prospectus is a part
constitutes such exchange offer registration
statement. Under certain circumstances, certain
holders of old notes (including holders of old
notes who may not participate in the exchange
offer) may require us to file, and cause to
become effective, a shelf registration statement
under the Securities Act which would cover
resales of old notes by such holders.

Use of Proceeds............. We will not receive any proceeds in the exchange
offer.

Risk Factors and Additional Information

See "Risk Factors" beginning on page 10 for a discussion of risks relating
to our business and the notes that should be considered in connection with the
exchange offer and an investment in the new notes. For additional information
regarding the notes, see "Description of the Notes" and "Material United States
Federal Income Tax Considerations."

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SUMMARY CONSOLIDATED FINANCIAL DATA

You should read the following summary consolidated financial data together
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and our consolidated financial statements and the related notes
included elsewhere in this offering circular.

Our revenues consist of service revenues and income from the sale of end-
user modems. EBITDA consists of net loss excluding net interest, taxes,
amortization of deferred stock compensation, depreciation and amortization. We
have provided EBITDA because it is a measure of financial performance commonly
used in the telecommunications industry, but other companies may calculate it
differently from us. We have presented EBITDA to enhance your understanding of
our operating results. You should not construe it as an alternative to
operating income as an indicator of our operating performance or as an
alternative to cash flows from operating activities as a measure of liquidity.

<TABLE>
<CAPTION>
Inception to Year Ended Year Ended
December 31, December 31, December 31,
1997 1998 1999
------------ ------------ ------------
($ in thousands)
<S> <C> <C> <C>
Consolidated Statement of Operations
Data:
Revenues............................... $ -- $ 931 $ 21,140
Income (loss) from operations.......... (1,630) (25,362) (168,426)
Interest income........................ 190 209 12,310
Interest expense....................... -- (3,694) (27,582)
Net income (loss)...................... (1,440) (28,847) (183,698)

Other Data:
EBITDA................................. $(1,430) $(21,379) $(146,936)
Capital expenditures................... 701 41,550 196,817

Consolidated Cash Flow Data:
Provided by (used in) operating
activities............................ $(1,094) $(11,363) $(123,050)
Provided by (used in) investing
activities............................ (701) (41,550) (316,521)
Provided by (used in) financing
activities............................ 11,243 54,420 523,634
</TABLE>

The pro forma balance sheet information below reflects the receipt of net
proceeds of $387.5 million from the offering of the old notes, after deducting
estimated offering expenses paid by NorthPoint.

<TABLE>
<CAPTION>
As of
December 31, 1999
------------------
Actual Pro Forma
-------- ---------
($ in thousands)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments............ $210,053 $597,553
Property and equipment, net.................................. 227,124 227,124
Total assets................................................. 479,160 879,160
Long-term obligations, including current portion............. 87,680 487,680
Total stockholders' equity................................... 308,061 308,061
</TABLE>

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RISK FACTORS

Prior to purchasing any of the notes offered hereby, you should carefully
consider the following risk factors in addition to other information contained
in this registration statement.

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 the notes.

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.

No Public Market Exists for the Notes and You May Not Be Able to Resell Your
Notes.

Before this exchange offer, there was no public market for the new notes. We
do not intend to apply for listing of the new notes on any securities exchange,
although we expect the new notes to be eligible for trading in PORTAL. Goldman,
Sachs & Co., Morgan Stanley & Co. Incorporated, CIBC World Markets Corp., and
Credit Suisse First Boston Corporation, the initial purchasers of the old
notes, have advised us that they intend to make a market in the new notes.
However, they are not obligated to do so and may discontinue any market-making
activity at any time without notice. Liquid markets may not develop for the new
notes and you may not be able to resell your notes at all or at prices you
consider reasonable. Future trading prices of the new notes also will depend on
many factors, including prevailing interest rates, our operating results and
the market for similar securities.

Consequences of Not Tendering Old Notes

Upon consummation of the exchange offer, we will have no further obligation
to register the old notes. Thereafter, any holder of old notes who does not
tender its old notes in the exchange offer, including any holder which is an
"affiliate" of ours which cannot tender its old notes in the exchange offer,
will continue to hold restricted securities which may not be offered, sold or
otherwise transferred, pledged or hypothecated except pursuant to Rule 144 and
Rule 144A under the Securities Act or pursuant to any other exemption from
registration under the Securities Act relating to the disposition of
securities. To the extent that old notes are tendered and accepted in the
exchange offer, the trading market for untendered and tendered but unaccepted
old

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notes could be adversely affected due to the limited amount, or "float," of the
old notes that are expected to remain outstanding following the exchange offer.
Generally, a lower "float" of a security could result in less demand to
purchase such security and could, therefore, result in lower prices for such
security. For the same reason, to the extent that a large amount of old notes
are not tendered or are tendered and not accepted in the exchange offer, the
trading market for the old notes could be adversely affected. See "Plan of
Distribution" and "The Exchange Offer."

Use of Proceeds

We will not receive any cash proceeds from the issuance of new notes in the
exchange offer. In consideration for issuing the new notes, we will receive an
equivalent principal amount of old notes. The old notes surrendered in exchange
for new notes will be retired and canceled and cannot be reissued. Accordingly,
issuance of the new notes will not result in any increase in our indebtedness.

The net proceeds to us from the sale of the old notes by us were
approximately $387.5 million after deducting underwriting discounts and
commissions and other expenses.

We intend to use the net proceeds from the offering to continue building our
networks, for working capital and for general corporate purposes. We may also
use a portion of the net proceeds to acquire or invest in complementary
businesses, technologies, services or products. However, we currently have no
material commitments or agreements with respect our any of these types of
transactions.

We Expect Our Losses and Negative Cash Flow to Continue

To date, we have incurred substantial operating losses, net losses and
negative cash flow on both an annual and quarterly basis. For the year ended
December 31, 1998, we had operating losses of approximately $25,362,000, net
losses of $28,847,000, and negative cash flow from operating and investing
activities of $52,913,000. 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. 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.

We Will Require a Significant Amount of Cash to Service Our Indebtedness; Our
Ability to Generate Cash Depends on Many Factors Beyond Our Control

We expect to continue to generate substantial net losses and negative cash
flow for at least the next several years. We may be unable to maintain a level
of cash flow of operations sufficient to permit us to pay the principal,
premium, if any, and interest on our indebtedness, including the notes, and any
additional indebtedness we may incur.

Our ability to make scheduled payments with respect to indebtedness
(including the notes) will depend upon, among other things:

. our ability to achieve significant and sustained growth in cash flow;

. the rate of and successful commercial deployment of our network;

. successful operation of our network;

. the market acceptance, customer demand, rate of utilization and pricing
for our services;

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. our ability to successfully complete development, upgrades and
enhancements of our network; and

. our ability to complete additional financings, as necessary.

Each of these factors is affected by economic, financial, competitive and
other factors, many of which are beyond our control. If we hare unable to
generate sufficient cash flow to service our indebtedness, we may have to
reduce or delay network deployments, restructure or refinance our indebtedness
or seek additional equity capital. We may be unable to effect these strategies.
Even if we are able to do so, it is uncertain whether any such strategy would
yield sufficient proceeds to service and repay our indebtedness. Any failure to
satisfy our obligations with respect to the notes at or before maturity would
be a default under the related indenture and could cause a default under
agreements governing our other indebtedness. If such defaults occur, the
holders of the indebtedness would have enforcement rights, including the right
to accelerate payment of the entire amount of the debt and the right to
commence an involuntary bankruptcy proceeding against us. In either case, our
business, prospects, operating results, financial condition and our ability to
service and repay our indebtedness, including the notes, would likely be
materially and adversely affected.

We Have Substantial Existing Debt and Will Incur Substantial Additional Debt,
So We May Be Unable to Pay Interest on the Notes

As of December 31, 1999, we had approximately $308,061,000 of stockholders'
equity and approximately $87,680,000 of debt outstanding, or $487,680,000 on a
pro forma basis to include the effect of the offering of the old notes. Our
indenture permits us to incur substantial additional debt, and we fully expect
to borrow substantial additional funds in the next several years.

Our current debt, and the incurrence of additional debt in the future, could
have important consequences to you, including, but not limited to, the
following:

. our ability to obtain additional financing or refinancing in the future
for the repayment of outstanding indebtedness, working capital, capital
expenditures, acquisitions, general corporate or other purposes may be
materially limited;

. our ability to redeem the notes in the event of a change of control may
be impaired;

. 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; our cash flow, if any, may therefore be
unavailable for building our business;

. our failure to generate sufficient cash flow to service our indebtedness
could result in a default;

. our debt agreements will contain restrictions and financial covenants
which could limit our ability to borrow additional funds and which, if
not met by us, could result in our indebtedness being declared due
prematurely, at a time when we could not make the required payments; and

. 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.

In addition, we do not currently generate cash flows from which we can make
payments on our notes. We cannot assure you that we will ever establish an
adequate revenue base or generate enough positive cash flow to provide for
future capital expenditures and repayment of debt.

Holders of Secured Debt Would Be Paid First and Would Be Paid From Assets Used
as Security Before You Are Paid If We Were to Become Insolvent

The notes will not be secured by any of our assets or the assets of our
subsidiaries. Our indenture permits us to incur additional debt, including an
unlimited amount of secured or unsecured purchase money debt. If we were to
become insolvent, holders of any secured debt would be paid first and would
receive payments from

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the assets used as security before you receive payments. You may therefore not
be fully repaid if we become insolvent.

Your Right to Payment Will Be Effectively Subordinated to the Claims of the
Creditors of Our Subsidiaries

Our subsidiaries will have no obligation to guarantee or otherwise pay
amounts due under the notes. Our right, if any, to receive assets of any
subsidiary upon liquidation or reorganization of that subsidiary, and
consequently your right to participate in those assets, will be effectively
subordinated to the claims of the subsidiary's creditors.

Our Subsidiaries Must Make Payments to Us in Order for Us to Make Payments on
the Notes

We conduct substantially all of our operations through our subsidiaries. Our
cash flow and ability to service our indebtedness, including the notes, will
depend upon the cash flow of our subsidiaries and payments of funds by those
subsidiaries to use in the form of dividends, repayment of loans or otherwise.
These subsidiaries will be under no legal obligation to pay any amounts due on
the notes or to make funds available for these payments. In addition, we cannot
assure you that our subsidiaries will have sufficient cash to make any payments
to us, as their cash flows from operations are currently negative.

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 and
could therefore impair our ability to meet our obligations with respect to the
notes.

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. 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.

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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, together with the proceeds of this
offering, 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
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. See
"Description of Other Indebtedness" and "Description of the Notes" for a more
detailed description of these covenants and the indenture.

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 Which Would Divert Funds Which
Could Be Used to Make Payments on the Notes

In 2000, we will have to make significant capital expenditures, estimated at
$220,000,000 to $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. These expenditures will
divert funds which could be used to make payments on the notes. 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.

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<PAGE>

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.

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

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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 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

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<PAGE>

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.

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.

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;

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. 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. We do not have
employment agreements with any of our executive officers, so any of these
individuals may terminate his or her employment with us at any time. We do not
have "key person" life insurance policies on any of our executive officers. The
loss of these key individuals could have a material adverse effect on our
business, prospects, financial condition and results of operations.

We believe that our success will depend in large part on our ability to
retain and attract qualified technical, marketing, managerial and other
personnel. Additionally, we believe an effective sales force is critical to our
success. The industry in which we compete is characterized by a high level of
employee mobility and aggressive recruiting of skilled personnel. We may be
unable to hire or retain necessary personnel in the future. Our inability to
attract and retain key personnel would have a material adverse effect on our
business, prospects, financial condition and results of operations.

The Market in Which We Operate is Highly Competitive, and We May Not Be Able to
Compete Effectively, Especially Against Established Industry Competitors With
Significantly Greater Financial Resources

We face competition from many competitors with significantly greater
financial resources, well-established brand names and larger customer bases. We
also expect competition to intensify in the future. We expect significant
competition from 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.

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

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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.

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-

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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 consolidation and integration in the market, our
business, prospects, financial condition and results of operations could be
materially adversely affected.

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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.

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Our Debt Creates Financial and Operating Risk That Could Limit the Growth of
Our Business

As of December 31, 1999, we had approximately $88,277,000 of indebtedness
and $308,061,000 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;

. 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 are currently examining the patent. We have not yet had an
opportunity to evaluate 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.

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

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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 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.

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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.

Forward-Looking Statements are Inherently Uncertain

Certain statements under the captions "Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," and elsewhere in this prospectus, are "forward-
looking statements." These forward-looking statements include, but are not
limited to, statements about our plans, objectives, expectations, intentions
and assumptions and other statements contained in the prospectus that are not
historical facts. When used in this prospectus, the words "expect,"
"anticipate," "intend," "plan," "believe," "seek," "estimate" and similar
expressions are generally intended to identify forward-looking statements.
Because these forward-looking statements involve risks and uncertainties,
including those described in this "Risk Factors" section, actual results may
differ materially from those expressed or implied by these forward-looking
statements. We do not intend to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.

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USE OF PROCEEDS

We will not receive any cash proceeds from the issuance of the new notes
offered in exchange for old notes. The old notes will be exchanged for new
notes of like principal amount. Old notes that are exchanged will be retired
and canceled.

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THE EXCHANGE OFFER

Purpose of the Exchange Offer

We issued the old notes on February 8, 2000 to Goldman, Sachs & Co., Morgan
Stanley & Co. Incorporated, CIBC World Markets Corp. and Credit Suisse First
Boston Corporation, the initial purchasers, pursuant to a purchase agreement.
The initial purchasers subsequently sold the old notes to "qualified
institutional buyers," as defined in Rule 144A under the Securities Act, in
reliance on Rule 144A, and outside the United States under Regulation S of the
Securities Act. As a condition to the sale of the old notes, we entered into a
registration rights agreement with the initial purchasers on February 8, 2000.
Pursuant to the registration rights agreement, we agreed that we would:

(1) file a registration statement with the SEC with respect to the new
notes on or before May 8, 2000;

(2) use our best efforts to cause the registration statement to be
declared effective by the SEC on or before August 6, 2000;

(3) use our best efforts to keep the registration statement effective
until the closing of the exchange offer; and

(4) use our best efforts to keep the exchange offer open for a period of
not less than 30 days.

Upon the effectiveness of the registration statement, we will offer the new
notes in exchange for the old notes. The registration statement satisfies some
of our obligations under the registration rights agreement. The summary of the
provisions of the registration rights agreement contained in this prospectus
does not purport to be complete. This summary is subject to and is qualified in
its entirety by reference to all the provisions in the registration rights
agreement, a copy of which is an exhibit to the registration statement of which
this prospectus is a part.

Resale of the New Notes

Based upon an interpretation by the staff of the SEC contained in no-action
letters issued to third parties, we believe that you may exchange old notes for
new notes in the ordinary course of business. For further information on the
SEC's position, see Exxon Capital Holdings Corporation, available May 13, 1988,
Morgan Stanley & Co. Incorporated, available June 5, 1991 and Shearman &
Sterling, available July 2, 1993, and other interpretive letters to similar
effect. You will be allowed to resell new notes to the public without further
registration under the Securities Act and without delivering to purchasers of
the new notes a prospectus that satisfies the requirements of Section 10 of the
Securities Act so long as you do not participate, do not intend to participate,
and have no arrangement or understanding with any person to participate, in a
distribution of the new notes. However, the foregoing does not apply to you if
you are:

. a broker-dealer who purchases the new notes directly from us to resell
pursuant to Rule 144A or any other available exemption under the
Securities Act;

. a broker-dealer who acquired the old notes as a result of market-making
or other trading activities; or

. you are an "affiliate" of ours within the meaning of Rule 405 under the
Securities Act.

In addition, if:

. you are a broker-dealer; or

. you acquire new notes in the exchange offer for the purpose of
distributing or participating in the distribution of the new notes,

you cannot rely on the position of the staff of the SEC contained in the no-
action letters mentioned above and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction, unless an exemption from registration is otherwise
available.

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Each broker-dealer that receives new notes for its own account in exchange
for old notes, which the broker-dealer acquired as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of the new notes. The letter of
transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. A broker-dealer may use this prospectus, as
it may be amended or supplemented from time to time, in connection with resales
of new notes received in exchange for old notes which the broker-dealer
acquired as a result of market-making or other trading activities. We have
agreed that, starting on the date of this prospectus and ending on the 180th
day after the exchange offer has been completed, we will make this prospectus
available to any broker-dealer for use in connection with any resale of this
kind.

Terms of the Exchange Offer

Upon the terms and subject to the conditions described in this prospectus
and in the letter of transmittal, we will accept any and all old notes validly
tendered and not withdrawn before the expiration date. We will issue $1,000
principal amount of new notes in exchange for each $1,000 principal amount of
outstanding old notes surrendered pursuant to the exchange offer. You may
tender old notes only in integral multiples of $1,000.

The form and terms of the new notes are substantially identical to the form
and terms of the old notes except that:

. the new notes will be freely transferable, other than as described in
this prospectus;

. we will register the new notes under the Securities Act and, therefore,
the new notes will not bear legends restricting their transfer;

. holders of the new notes will not be entitled to certain rights of the
holders of old notes under the registration rights agreement, which
rights will terminate upon the completion of the exchange offer; and

. the new notes will not contain any provisions regarding the payment of
additional interest.

The new notes will evidence the same debt as the old notes and will be
issued under the same indenture, so the new notes and the old notes will be
treated as a single class of debt securities under the indenture.

As of the date of this prospectus, $400,000,000 in aggregate principal
amount of the old notes are outstanding and registered in the name of Cede &
Co., as nominee for The Depository Trust Company. Only registered holders of
the old notes, or their legal representative or attorney-in-fact, as reflected
on the records of the trustee under the indenture may participate in the
exchange offer. We will not set a fixed record date for determining registered
holders of the old notes entitled to participate in the exchange offer.

You do not have any appraisal or dissenters' rights under the indenture in
connection with the exchange offer. We intend to conduct the exchange offer in
accordance with the provisions of the registration rights agreement and the
applicable requirements of the Securities Act, the Exchange Act and the rules
and regulations of the SEC.

If you tender old notes in the exchange offer you will not be required to
pay brokerage commissions or fees or, subject to the instructions in the letter
of transmittal, transfer taxes with respect to the exchange of old notes
pursuant to the exchange offer. We will pay all charges and expenses, other
than the applicable taxes described below, in connection with the exchange
offer.

Expiration Date; Extensions; Amendments

The term expiration date will mean 5:00 p.m., New York City time on June 13,
2000, unless we, in our sole discretion, extend the exchange offer, in which
case the term expiration date will mean the latest date and time to which we
extend the exchange offer.

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To extend the exchange offer, we will:

. notify the exchange agent of any extension orally or in writing;

. mail to each registered holder an announcement that will include
disclosure of the approximate number of old notes deposited to date; and

. make a public announcement of the extension,

each before 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date. Unless otherwise required by applicable
law or regulation, the public announcement will be made by a release to the Dow
Jones News Service. During any extension of the exchange offer, all old notes
previously tendered in the exchange offer will remain subject to the exchange
offer.

The initial exchange date will be the first business day following the
expiration date. We reserve the right, in our reasonable discretion:

. to delay accepting any old notes;

. to extend the exchange offer;

. to terminate the exchange offer and not accept for exchange any old
notes for any reason, including if any conditions listed below under "--
Conditions" are not satisfied; or

. amend the terms of the exchange offer in any manner,

by giving oral or written notice of the delay, extension, termination or
amendment to the exchange agent.

We will follow any delay in acceptance, extension, termination or amendment
as promptly as practicable by written notice to the exchange agent and by
either issuance of a press release or oral or written notice to the registered
holders. Unless we terminate the exchange offer prior to 5:00 p.m., New York
City time, on the expiration date, we will exchange the new notes for the old
notes on the exchange date.

If:

. we waive any material condition to the exchange offer or amend the
exchange offer in any other material respect; and

. at the time that notice of this waiver or amendment is first published,
sent or given to holders of old notes in the manner specified above, the
exchange offer is scheduled to expire at any time earlier than the fifth
business day from and including the date that the notice is first so
published, sent or given,

then the exchange offer will be extended until that fifth business day.

Interest on the New Notes

The new notes will bear interest at the same rate and on the same terms as
the old notes. Consequently, the new notes will bear interest at a rate equal
to 12 7/8% per annum. Interest will be payable semi-annually in arrears on
February 1 and August 1, commencing August 1, 1999. You will receive interest
on February 1, 2000 from August 1, 1999. We will deem the right to receive any
interest accrued on the old notes waived by you if we accept your old notes for
exchange.

Procedures for Tendering

You may tender old notes in the exchange offer only if you are a registered
holder of old notes. To tender in the exchange offer, you must:

. complete, sign and date the letter of transmittal or a facsimile of the
letter of transmittal;

. have the signatures guaranteed if required by the letter of transmittal;
and

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. mail or otherwise deliver the letter of transmittal or the facsimile to
the exchange agent at the address listed below under "--Exchange Agent"
for receipt before the expiration date.

In addition, either:

. the exchange agent must receive certificates for the old notes along
with the letter of transmittal into its account at the depositary
pursuant to the procedure for book-entry transfer described below before
the expiration date;

. the exchange agent must receive a timely confirmation of a book-entry
transfer of the old notes, if the procedure is available, into its
account at the depositary pursuant to the procedure for book-entry
transfer described below before the expiration date; or

. you must comply with the delivery procedures described below under "--
Guaranteed Delivery Procedures".

Your tender, if not withdrawn before the expiration date, will constitute an
agreement between you and us in accordance with the terms and subject to the
conditions described in this prospectus and in the letter of transmittal.

The method of delivery of old notes and the letter of transmittal and all
other required documents to the exchange agent is at your election and risk. We
recommend that instead of delivery by mail, you use an overnight or hand
delivery service, properly insured. In all cases, you should allow sufficient
time to assure delivery to the exchange agent before the expiration date. You
should not send letters of transmittal or old notes to us. You may request your
respective brokers, dealers, commercial banks, trust companies or nominees to
effect the transactions described above for you.

If you are a beneficial owner of old notes whose old notes are registered in
the name of a broker, dealer, commercial bank, trust company or other nominee
and you wish to tender your notes, you should contact the registered holder
promptly and instruct the registered holder to tender on your behalf. If you
wish to tender on your own behalf, before completing and executing the letter
of transmittal and delivering the old notes you must either:

. make appropriate arrangements to register ownership of the old notes in
your name; or

. obtain a properly completed bond power from the registered holder.

The transfer of registered ownership may take considerable time.

Unless the old notes are tendered:

(1) by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or the box entitled "Special Delivery
Instructions" on the letter of transmittal; or

(2) for the account of:

. a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.,

. a commercial bank or trust company having an office or correspondent
in the United States; or

. an "eligible guarantor institution" within the meaning of Rule 17Ad-
15 under the Exchange Act that is a member of one of the recognized
signature guarantee programs identified in the letter of
transmittal,

an eligible guarantor institution must guarantee the signatures on a letter of
transmittal or a notice of withdrawal described below under "--Withdrawal of
Tenders."

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If the letter of transmittal is signed by a person other than the registered
holder, the old notes must be endorsed or accompanied by a properly completed
bond power, signed by the registered holder as the registered holder's name
appears on the old notes.

If the letter of transmittal or any old notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, they
should so indicate when signing, and unless waived by us, they must submit
evidence satisfactory to us of their authority to so act with the letter of
transmittal.

The exchange agent and the depositary have confirmed that any financial
institution that is a participant in the depositary's system may utilize the
depositary's Automated Tender Offer Program to tender notes.

Unless an exemption applies under the applicable law and regulations
concerning backup withholding of federal income tax, the exchange agent will be
required to withhold 31% of the gross proceeds otherwise payable to a holder in
the exchange offer if the holder does not provide the holder's taxpayer
identification number and certify that the number is correct. Each tendering
holder should complete and sign the main signature form and the Substitute Form
W-9 included as part of the letter of transmittal, so as to provide the
information and certification necessary to avoid backup withholding. This will
not be required, however, if an applicable exemption exists and is proved in a
manner satisfactory to us and the exchange agent.

We will determine in our sole discretion all questions as to the validity,
form, eligibility, including time of receipt, acceptance and withdrawal of
tendered old notes, which determination will be final and binding. We reserve
the absolute right to reject any and all old notes not properly tendered or any
old notes our acceptance of which would, in the opinion of our counsel, be
unlawful. We also reserve the right to waive any defects, irregularities or
conditions of tender as to particular old notes. Our interpretation of the
terms and conditions of the exchange offer, including the instructions in the
letter of transmittal, will be final and binding on all parties. Unless waived,
you must cure any defects or irregularities in connection with tenders of old
notes within the time we determine. Although we intend to notify you of defects
or irregularities with respect to tenders of old notes, neither we, the
exchange agent nor any other person will incur any liability for failure to
give you that notification. Unless waived, we will not deem tenders of old
notes to have been made until you cure the defects or irregularities.

While we have no present plan to acquire any old notes that are not tendered
in the exchange offer or to file a registration statement to permit resales of
any old notes that are not tendered in the exchange offer, we reserve the right
in our sole discretion to purchase or make offers for any old notes that remain
outstanding after the expiration date. We also reserve the right to terminate
the exchange offer, as described below under "--Conditions," and, to the extent
permitted by applicable law, purchase old notes in the open market, in
privately negotiated transactions or otherwise. The terms of any of those
purchases or offers could differ from the terms of the exchange offer.

Terms and Conditions of the Letter of Transmittal

The letter of transmittal contains, among other things, the following terms
and conditions, which are part of the exchange offer.

The party tendering old notes for exchange, or the transferor, exchanges,
assigns and transfers the old notes to us and irrevocably constitutes and
appoints the exchange agent as its agent and attorney-in-fact to cause the old
notes to be assigned, transferred and exchanged. The transferor represents and
warrants that:

(1) it has full power and authority to tender, exchange, assign and
transfer the old notes and to acquire new notes issuable upon the
exchange of the tendered old notes; and

(2) when the same are accepted for exchange, we will acquire good and
unencumbered title to the tendered old notes, free and clear of all
liens, restrictions, charges and encumbrances and not subject to any
adverse claim.

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The transferor also warrants that it will, upon request, execute and deliver
any additional documents we deem necessary or desirable to complete the
exchange, assignment and transfer of tendered old notes. The transferor further
agrees that acceptance of any tendered old notes by us and the issuance of new
notes in exchange shall constitute performance in full by us of our obligations
under the registration rights agreement and that we shall have no further
obligations or liabilities under the registration rights agreement, except in
certain limited circumstances. All authority conferred by the transferor will
survive the death or incapacity of the transferor and every obligation of the
transferor shall be binding upon the heirs, legal representatives, successors,
assigns, executors and administrators of the transferor.

If you wish to tender old notes in exchange for new notes in the exchange
offer, we will require you to represent that:

. you are not an affiliate of ours;

. you are not a broker-dealer that owns old notes acquired directly from
us or an affiliate of ours;

. you will acquire any new notes in the ordinary course of your business;
and

. at the time of completion of the exchange offer, you have no arrangement
with any person to participate in the distribution of the new notes.

In addition, in connection with the resale of new notes, any participating
broker-dealer who acquired the old notes for its own account as a result of
market-making or other trading activities must deliver a prospectus meeting the
requirements of the Securities Act. The SEC has taken the position that
participating broker-dealers may fulfill their prospectus delivery requirements
with respect to the new notes, other than a resale of an unsold allotment from
the original sale of the notes, with the prospectus contained in the
registration statement.

Book-Entry Transfer

The exchange agent will make a request to establish an account with respect
to the old notes at the depositary for purposes of the exchange offer within
two business days after the date of this prospectus, and any financial
institution that is a participant in the depositary's systems may make book-
entry delivery of old notes by causing the depositary to transfer the old notes
into the exchange agent's account at the depositary in accordance with the
depositary's procedures for transfer. However, although delivery of old notes
may be effected through book-entry transfer at the depositary, you must
transmit and the exchange agent must receive, the letter of transmittal or a
facsimile of the letter of transmittal, with any required signature guarantees
and any other required documents, at the address below under "--Exchange Agent"
on or before the expiration date or pursuant to the guaranteed delivery
procedures described below.

Guaranteed Delivery Procedures

If you wish to tender your old notes and (1) the notes are not immediately
available or (2) you cannot deliver the old notes, the letter of transmittal or
any other required documents to the exchange agent before the expiration date,
you may effect a tender if:

(1) the tender is made through an eligible guarantor institution;

(2) before the expiration date, the exchange agent receives from the
eligible guarantor institution a properly completed and duly executed
notice of guaranteed delivery, substantially in the form provided by
us, that:

. states your name and address, the certificate number(s) of the old
notes and the principal amount of old notes tendered,

. states that the tender is being made by that notice of guaranteed
delivery,

30
<PAGE>

. guarantees that, within three Nasdaq National Market trading days
after the expiration date, the eligible guarantor institution will
deposit with the exchange agent the letter of transmittal, together
with the certificate(s) representing the old notes in proper form
for transfer or a confirmation of a book-entry transfer, as the case
may be, and any other documents required by the letter of
transmittal; and

. within three Nasdaq National Market trading days after the
expiration date, the exchange agent receives a properly executed
letter of transmittal, as well as the certificate(s) representing
all tendered old notes in proper form for transfer and all other
documents required by the letter of transmittal.

Upon request, the exchange agent will send to you a notice of guaranteed
delivery if you wish to tender your notes according to the guaranteed delivery
procedures described above.

Unless old notes being tendered by the above-described method or a timely
confirmation of a book-entry transfer is deposited with the exchange agent
within the time period described above, accompanied or preceded by a properly
completed letter of transmittal and any other required documents, we may reject
the tender. Copies of a notice of guaranteed delivery which may be used by
eligible guarantor institutions for the purpose described in this paragraph are
being delivered with this prospectus and the letter of transmittal.

A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed letter of transmittal
accompanied by the old notes or a timely confirmation of a book-entry transfer
is received by the exchange agent. Issuances of new notes in exchange for old
notes tendered by an eligible guarantor institution as described above will be
made only against deposit of the letter of transmittal and any other required
documents and the tendered old notes or a timely confirmation of a book-entry
transfer.

Withdrawal of Tenders

Except as otherwise provided in this prospectus, you may withdraw tenders of
old notes at any time before 5:00 p.m. New York city time on the expiration
date.

To withdraw a tender of old notes in the exchange offer, the exchange agent
must receive a written or facsimile transmission notice of withdrawal at its
address listed in this prospectus before the expiration date. Any notice of
withdrawal must:

. specify the name of the person who deposited the old notes to be
withdrawn;

. identify the old notes to be withdrawn, including the certificate
number(s) and principal amount of the old notes, which must be an
authorized denomination;

. state that the holder is withdrawing its election to have those old
notes exchanged;

. state the name of the registered holder of those old notes; and

. be signed in the same manner as the original signature on the letter of
transmittal by which the old notes were tendered, including any required
signature guarantees.

We will determine in our sole discretion all questions as to the validity,
form and eligibility of the notices, and our determination will be final and
binding on all parties. We will not deem any properly withdrawn old notes to
have been validly tendered for purposes of the exchange offer, and we will not
issue new notes with respect to those old notes, unless you validly retender
the withdrawn old notes. You may retender properly withdrawn old notes by
following one of the procedures described above under "The Exchange Offer--
Procedures for Tendering" at any time before the expiration date.

31
<PAGE>

Acceptance of Original Notes for Exchange; Delivery of New Notes

Upon the terms and subject to the conditions of the exchange offer, the
acceptance for exchange of old notes validly tendered and not withdrawn and the
issuance of the new notes will be made on the exchange date. For the purposes
of the exchange offer, we will be deemed to have accepted for exchange validly
tendered old notes when, as and if we have given written notice of acceptance
to the exchange agent.

The exchange agent will act as agent for the tendering holders of old notes
for the purposes of receiving new notes from us and causing the old notes to be
assigned, transferred and exchanged. Upon the terms and subject to the
conditions of the exchange offer, delivery of new notes to be issued in
exchange for accepted old notes will be made by the exchange agent promptly
after acceptance of the tendered old notes. Old notes not accepted for exchange
will be returned without expense to the tendering holders. Or, in the case of
old notes tendered by book-entry transfer, the non-exchanged old notes will be
credited to an account maintained with the book-entry transfer facility
promptly following the expiration date. If we terminate the exchange offer
before the expiration date, these non-exchanged old notes will be credited to
the exchange agent's account promptly after the exchange offer is terminated.

Conditions

Notwithstanding any other term of the exchange offer, we will not be
required to accept for exchange, or exchange the new notes for, any old notes.
We may terminate the exchange offer by oral or written notice to the exchange
agent and by timely public announcement communicated, unless otherwise required
by applicable law or regulation, by making a release to the Dow Jones News
Service or, at our option, modify or otherwise amend the exchange offer, if:

(1) any action or proceeding is threatened, instituted or pending before,
or any injunction, order or decree is issued by, any court or
governmental agency or other governmental regulatory or administrative
agency or commission:

(A) seeking to restrain or prohibit the making or completion of the
exchange offer or any other transaction contemplated by the
exchange offer;

(B) assessing or seeking any damages as a result of the making or
completion of the exchange offer or any other transaction
contemplated by the exchange offer; or

(C) resulting in a material delay in our ability to accept for
exchange or exchange some or all of the old notes in the exchange
offer;

(2) any statute, rule, regulation, order or injunction is sought,
proposed, introduced, enacted, promulgated or deemed applicable to the
exchange offer or any of the transactions contemplated by the exchange
offer by any government or governmental authority, domestic or
foreign, or any action is taken, proposed or threatened, by any
government, governmental authority, agency or court, domestic or
foreign, that in our sole judgment might result in any of the
consequences referred to in clauses (1)(A) or (B) above or, in our
sole judgment, might result in the holders of new notes having
obligations relating to resales and transfers of new notes which are
greater than those described in the interpretations of the SEC
referred to in "--Resale of the New Notes" above, or would otherwise
make it inadvisable to proceed with the exchange offer; or

(3) a material adverse change has occurred in our business, condition
(financial or otherwise), operations, or prospects.

If we determine in our reasonable discretion that any of these conditions
are not satisfied, we may:

. refuse to accept any old notes and return all tendered old notes to you;

. extend the exchange offer and retain all old notes tendered before the
exchange offer expires, subject, however, to your rights to withdraw the
old notes; or

32
<PAGE>

. waive the unsatisfied conditions with respect to the exchange offer and
accept all properly tendered old notes that have not been withdrawn.

If the waiver constitutes a material change to the exchange offer, we will
promptly disclose the waiver by means of a prospectus supplement that we will
distribute to the registered holders of the old notes, and we will extend the
exchange offer for a period of five to ten business days, depending upon the
significance of the waiver and the manner of disclosure to the registered
holders, if the exchange offer would otherwise expire during the five to ten
business day period.

The conditions described above are for our sole benefit. We may assert these
conditions regarding all or any portion of the exchange offer regardless of the
circumstances, including any action or inaction by us, giving rise to the
condition. We may waive these conditions in whole or in part at any time or
from time to time in our sole discretion. Our failure at any time to exercise
any of the rights described above will not be deemed a waiver of any of those
rights, and each right will be deemed an ongoing right which may be asserted at
any time or from time to time. In addition, we have reserved the right, despite
the satisfaction of each of the conditions described above, to terminate or
amend the exchange offer.

Any determination by us concerning the fulfillment or non-fulfillment of any
conditions will be final and binding upon all parties.

In addition, we will not accept for exchange any old notes tendered and no
new notes will be issued in exchange for any old notes, if at that time any
stop order is threatened or in effect relating to:

. the registration statement of which this prospectus constitutes a part;
or

. the qualification of the indenture under the Trust Indenture Act.

Termination of Rights

All of your rights under the registration rights agreement will terminate
upon consummation of the exchange offer except with respect to our continuing
obligation to indemnify you and parties related to you against liabilities,
including liabilities under the Securities Act.

Shelf Registration

If (1) the exchange offer is not completed by November 4, 2000, or (2)
existing Commission interpretations are changed such that the new notes are not
or would not be, upon receipt, transferable by each holder of old notes, other
than restricted holders, without need for further compliance with Section 5 of
the Securities Act (except for the requirement to deliver a prospectus included
in the exchange offer registration statement applicable to resales by a broker-
dealer of new notes received by such broker-dealer pursuant to the exchange
offer in exchange for new notes other than those acquired by the broker-dealer
directly from us), we will file with the Commission a shelf registration
statement to register for public resale the transfer restricted securities held
by you if you provide us with the necessary information for inclusion in the
shelf registration statement.

For the purposes of the registration rights agreement, "restricted holder"
means a holder that is (i) an affiliate of the Company within the meaning of
Rule 405, (ii) a holder who acquires old notes outside the ordinary course of
such holder's business, (iii) a holder who has arrangements or understandings
with any person to participate in the exchange offer for the purpose of
distributing old notes and (iv) a holder that is a broker-dealer, but only with
respect to exchange securities received by such broker-dealer pursuant to an
exchange offer in exchange for new notes acquired by the broker-dealer directly
from us.

If we file a shelf registration statement, we will, among other things:

. provide to each holder for whom the shelf registration statement was
filed copies of the prospectus which is a part of the shelf registration
statement;

33
<PAGE>

. notify each of those holders when the shelf registration statement has
become effective;

. take other actions as are required to permit unrestricted resales of the
old notes or the new notes, as the case may be;

. use our best efforts to cause such shelf registration statement to be
declared effective under the Securities Act within 180 days; and

. use our best efforts to keep such shelf registration statement effective
until two years after its effective date.

A holder selling old notes or new notes under the shelf registration statement
generally must be named as a selling securityholder in the related prospectus
and must deliver a prospectus to purchasers. Consequently, the holder will be
subject to the civil liability provisions under the Securities Act in
connection with those sales and will be bound by any applicable provisions of
the registration rights agreement, including specified indemnification
obligations.

Additional Interest

If:

(1) we do not file the registration statement with the SEC on or before
May 8, 2000;

(2) the registration statement has not become effective or been declared
effective on or before August 6, 2000;

(3) the exchange offer has not been completed by November 4, 2000;

(4) the registration statement becomes or is declared effective by the
Commission but thereafter ceases to be effective or usable in
connection with resales of new notes during the periods set forth in
the registration statement; or

(5) we are obligated to file the shelf registration statement, and we fail
to file the shelf registration statement with the SEC on or before the
30th day after the filing obligation arises,

with each of items (1) through (5) constituting a "registration default," we
agree to pay you additional interest at a rate of 0.50% per annum during the
90-day period immediately following the occurrence of any registration default,
which rate shall increase by 0.25% per annum at the beginning of each
subsequent 90-day period, provided that in no event shall the rate of such
additional interest exceed 1.00% per annum, and further provided that such
additional interest shall only accrue until the date on which all registration
defaults have been cured. Such additional interest will be payable in cash
semi-annually in arrears on each February 15 and August 15.

34
<PAGE>

Exchange Agent

We have appointed The Bank of New York as exchange agent for the exchange
offer. You should direct questions and requests for assistance, requests for
additional copies of this prospectus or the letter of transmittal and requests
for a notice of guaranteed delivery to the exchange agent addressed as follows:

By registered or Certified Mail:

c/o The Bank of New York
101 Barclay Street, 7E
New York, New York 10286
Attn: Tolupope Adeyoju, Reorganization Department

By Hand Delivery:

c/o The Bank of New York
101 Barclay Street, 7E
New York, New York 10286
Attn: Tolupope Adeyoju, Reorganization Department

By Overnight Delivery:

c/o The Bank of New York
101 Barclay Street, 7E
New York, New York 10286
Attn: Tolupope Adeyoju, Reorganization Department

By Facsimile:

(212) 815-6339
Attn: Reorganization Department

Confirm by Telephone:

(212) 815-3738

Delivery to an address other than the one stated above or transmission via a
facsimile number other than the one stated above will not constitute a valid
delivery.

Fees and Expenses

We will bear the expenses of soliciting tenders. We are making the principal
solicitation by mail; however, our and our affiliates' officers and regular
employees may make additional solicitations by telegraph, telephone or in
person.

We have not retained any dealer manager in connection with the exchange
offer and will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses.

We will pay the cash expenses incurred in connection with the exchange offer
which we estimate to be approximately $250,000. These expenses include
registration fees, fees and expenses of the exchange agent and the trustee,
accounting and legal fees and printing costs, among others.

We will pay all transfer taxes, if any, applicable to the exchange of notes
pursuant to the exchange offer. If, however, a transfer tax is imposed for any
reason other than the exchange of the old notes pursuant to the

35
<PAGE>

exchange offer, then you must pay the amount of the transfer taxes. If you do
not submit satisfactory evidence of payment of the taxes or exemption from
payment with the letter of transmittal, we will bill the amount of the transfer
taxes directly to you.

Consequences of Failure to Exchange Old Notes

Participation in the exchange offer is voluntary. We urge you to consult
your financial and tax advisors in making your decisions on what action to
take.

As a result of the making of this exchange offer, and upon acceptance for
exchange of all validly tendered original notes according to the terms of this
exchange offer, we will have fulfilled a covenant contained in the terms of the
old notes and the registration rights agreement. Holders of the old notes who
do not tender their certificates in the exchange offer will continue to hold
those certificates and will be entitled to all the rights, and limitations
applicable to the old notes under the indenture, except for any rights under
the registration rights agreement which by their terms terminate or cease to
have further effect as a result of the making of this exchange offer. See
"Description of the Notes."

All untendered old notes will continue to be subject to the restrictions on
transfer set forth in the indenture. In general, the old notes may not be
reoffered, resold or otherwise transferred in the U.S. unless registered under
the Securities Act or unless an exemption from the Securities Act registration
requirements is available. Except under certain limited circumstances, we do
not intend to register the old notes under the Securities Act.

In addition, any holder of old notes who tenders in the exchange offer for
the purpose of participating in a distribution of the new notes may be deemed
to have received restricted securities. If so, that holder will be required to
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. To the extent that
old notes are tendered and accepted in the exchange offer, the trading market,
if any, for the old notes could be adversely affected.

We may in the future seek to acquire untendered old notes in open market or
privately negotiated transactions, through subsequent exchange offers or
otherwise. We have no present plan to acquire any old notes that are not
tendered in the exchange offer.

36
<PAGE>

CAPITALIZATION

The following table sets forth:

(A) Our capitalization as of December 31, 1999.

(B) Our pro forma capitalization after giving effect to the receipt of
estimated net proceeds of $387.5 million from the offering of the old
notes, after deducting offering expenses paid by us.

You should read this table in conjunction with our consolidated financial
statements and the related notes included elsewhere in this prospectus.

<TABLE>
<CAPTION>
As of December 31, 1999
--------------------------
(A) (B)
----------- -------------
Actual Pro Forma
----------- -------------
($ in thousands)
<S> <C> <C>
Cash, cash equivalent and short-term investments.... $ 210,053 $ 597,553
Debt:
Current portion of capital lease obligations, net of
unamortized debt discount.......................... 1,027 1,027
Capital lease obligations, net of unamortized debt
discount........................................... 1,653 1,653
Secured credit facility............................. 85,000 85,000
Notes offered hereby................................ -- 400,000
----------- -----------
Total debt........................................ 87,680 487,680
----------- -----------
Stockholder's equity:
Common stock, $.011 par value; 281,250,000 shares
authorized at December 31, 1999; 126,469,210 shares
(including 2,466,724 shares of Class B common
stock) issued and outstanding at December 31,
1999............................................... $ 126 $ 126
Warrants............................................ 8,701 8,701
Additional paid-in capital.......................... 525,294 525,294
Deferred stock compensation......................... (12,405) (12,405)
Accumulated other comprehensive income.............. 330 330
Accumulated deficit................................. (213,985) (213,985)
----------- -----------
Total stockholder's equity........................ 308,061 308,061
----------- -----------
Total capitalization.............................. $ 395,741 $ 795,741
=========== ===========
</TABLE>

37
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data for the period from May
16, 1997 (inception) to December 31, 1997, for the years ended December 31,
1998 and 1999 and as of December 31, 1999 have been derived from our audited
financial statements and the related notes, which are included elsewhere in
this registration statement. You should read the following selected
consolidated financial data together with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our consolidated
financial statements and the related notes included elsewhere in this
registration statement.

Our revenues consist of service revenues and revenue from the sale of end-
user modems. EBITDA consists of net loss excluding net interest, taxes,
amortization of deferred stock compensation, depreciation and amortization. We
have provided EBITDA because it is a measure of financial performance commonly
used in the telecommunications industry, but other companies may calculate it
differently from us. We have presented EBITDA to enhance your understanding of
our operating results. You should not construe it as an alternative to
operating income as an indicator of our operating performance or as an
alternative to cash flows from operating activities as a measure of liquidity.

Our earnings were insufficient to cover fixed charges for the year ended
December 31, 1998 and the year ended December 31, 1999 by $28.8 million and
$183.4 million, respectively. Fixed charges for the period from May 16, 1997
(inception) to December 31, 1997 were insignificant.

<TABLE>
<CAPTION>
Inception to Year Ended Year Ended
December 31, December 31, December 31,
1997 1998 1999
------------ ------------ ------------
($ in thousands, except per share
data)
<S> <C> <C> <C>
Consolidated Statement of Operations
Data:
Revenues............................. $ -- $ 931 $ 21,140
Operating expenses:
Network expenses................... 55 3,970 50,354
Selling, marketing, general and
administrative.................... 1,374 18,340 117,899
Amortization of deferred
compensation...................... 174 2,664 5,406
Depreciation and amortization...... 27 1,319 15,907
----------- ----------- -----------
Total operating expenses......... 1,630 26,293 189,566
----------- ----------- -----------
Income (loss) from operations........ (1,630) (25,362) (168,426)
Interest income...................... 190 209 12,310
Interest expense..................... -- (3,694) (27,582)
----------- ----------- -----------
Net income (loss).................... $ (1,440) $ (28,847) $ (183,698)
=========== =========== ===========
Net (loss) per common share.......... $ (0.07) $ (1.18) $ (2.02)
=========== =========== ===========
Shares used in computing net (loss)
per common share.................... 21,733,560 24,379,445 90,764,996
=========== =========== ===========
Other Data:
EBITDA............................... $ (1,430) $ (21,379) $ (146,936)
Capital expenditures................. 701 41,550 196,817
Consolidated Cash Flow Data:
Provided by (used in) operating
activities.......................... $ (1,094) $ (11,363) $ (123,050)
Provided by (used in) investing
activities.......................... (701) (41,550) (316,521)
Provided by (used in) financing
activities.......................... 11,243 54,421 523,634
</TABLE>

38
<PAGE>

The pro forma balance sheet information below reflects the receipt of
estimated net proceeds of $387.5 million from the offering of the old notes
which was completed in February 2000, after deducting estimated offering
expenses paid by NorthPoint.

<TABLE>
<CAPTION>
As of
December 31,
1999
------------------
Actual Pro Forma
-------- ---------
($ in thousands)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short term investments............ $210,053 $597,553
Property and equipment, net.................................. 227,124 227,124
Total assets................................................. 479,160 879,160
Long-term obligations, including current portion............. 87,680 487,680
Total stockholders' equity (deficit)......................... 308,061 308,061
</TABLE>

39
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of NorthPoint's financial condition
and results of operations should be read in conjunction with Item 6. Selected
Consolidated Financial Data and 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 "Risk Factors--Forward-
Looking Statements are Inherently Uncertain."

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, 1999, 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, 1999, 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; and

. negotiating interconnection agreements.

40
<PAGE>

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 1999 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. We define it 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 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

41
<PAGE>

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 fourth quarter of 1999, 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 services generally range from $75 per
month for 160 kilobits per second service to $250 per month for 1.5 megabits
per second service, before volume discounts. Although pricing will be an
important part of our strategy, we believe that customer relationships,
customer care and consistent quality will be the key to generating customer
loyalty. During the past several years, market prices for many
telecommunications services have been declining, which is a trend that we
believe will likely continue. As prices decline for any given speed of service,
we expect that the total number of end users and the proportion of our end
users purchasing our higher-speed, higher-priced services will increase. The
cost to upgrade an end user's speed is 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 this strategy.
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.
Specifically, our accelerated deployment plan requires us to introduce
provisioning processes and interfaces with all of the eight major local
telephone companies simultaneously. We also must increase and enhance training
of our employees as well as our existing and new network service provider
partners. We anticipate continuing strong increases in end user line
installations in the next two to three quarters due to gained efficiencies
through more advanced provisioning processes and interfaces, as well as
anticipated growth in demand for DSL services from our expanded partner base in
existing and new geographic markets. Acceleration of line installation is
dependent upon our ability to upgrade our provisioning processes, the timing 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 collectibility. 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.

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<PAGE>

We plan to employ a regional sales team in each market we enter. To attract
and retain a highly qualified sales force, we plan to offer our sales and
customer care personnel a compensation package consisting of commissions and
stock options. We expect to incur significant selling and marketing costs as we
continue to expand our operations. In addition, we plan to offer sales
promotions, especially in the first few years as we establish our market
presence.

Amortization of Deferred Stock Compensation. Deferred stock compensation
arises as a result of the granting of stock options to employees with exercise
prices per share subsequently determined to be below the fair values per share
for financial reporting purposes of our common stock at dates of grant. The
deferred compensation is being amortized over the vesting period of the
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

Year Ended December 31, 1998 and Year Ended December 31, 1999

Revenues. We began our commercial operations in March 1998 and recognized
$931,000 in revenues for the year ended December 31, 1998, 75% of which
consisted of recurring revenues and did not include sales of end user modems or
other electronic equipment. Revenues for the year ended December 31, 1999 were
approximately $21,140,000, 54% 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 prior year as we sold an
increasing amount of end-user modems and other electronic equipment during the
year 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 $3,970,000 for the
year ended December 31, 1998 and $50,354,000 for the year ended December 31,
1999. 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 and 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. In addition, 1998 network expenses did not include the cost of
end user modems, as we began to sell such modems in the second quarter of 1999.

43
<PAGE>

Selling, Marketing, General and Administrative Expenses. Selling, marketing,
general and administrative expenses were approximately $18,340,000 for the year
ended December 31, 1998 and $117,899,000 for the year ended December 31, 1999.
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.

Amortization of Deferred Stock Compensation. Amortization of deferred stock
compensation was $2,664,000 for the year ended December 31, 1998 and $5,406,000
for the year ended December 31, 1999. This increase in deferred stock
compensation expense is due to the stock option grants to new employees. The
unamortized balance of $12,405,000 at December 31, 1999 will be amortized over
the remaining vesting period of each grant.

Depreciation and Amortization. Depreciation and amortization expenses were
approximately $1,319,000 for the year ended December 31, 1998 and $15,907,000
for the year ended December 31, 1999. 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 year ended December 31,
1998 was $209,000. This interest income was earned primarily from the proceeds
raised in the Series B preferred stock financing in August 1997 and the cash on
hand from a line of credit borrowing on a bridge loan closed in July 1998. The
interest income for the year ended December 31, 1999 was $12,310,000 and was
earned primarily from the proceeds raised in our initial public offering in May
1999, our Series D Preferred Stock equity investments from strategic partners
in March and April of 1999, and our Series C equity investments in February of
1999.

Interest expense in 1998 was approximately $3,694,000. Interest expense for
the year ended December 31, 1998 includes amortization of $1,868,000 and
$198,000 related to debt discount recorded in conjunction with the issuance of
bridge loan warrants and equipment lease warrants, respectively. Interest
expense for the year ended December 31, 1999 was $27,582,000 and primarily
represents the interest associated with our senior secured credit facilities,
which we closed in April 1999 and replaced with a larger facility in December
1999.

Period from Inception to December 31, 1997 and Year Ended December 31, 1998

Revenues. We commercially introduced our services in March 1998.
Accordingly, we recognized no revenues in 1997. Revenues for the year ended
December 31, 1998 were approximately $931,000, 75% of which consisted of
recurring revenues and did not include sales of end user modems or other
electronic equipment.

Network Expenses. Network expenses were approximately $55,000 in 1997 and
$3,970,000 in the year ended December 31, 1998. These costs consisted primarily
of monthly rental costs for lines between end users and central offices,
between central offices and our metropolitan nodes, between our metropolitan
nodes and our network service providers, and end user line installation and
costs charged to us by the traditional telephone companies.

Selling, Marketing, General and Administrative Expenses. Selling, marketing,
general and administrative expenses were approximately $1,374,000 for 1997 and
$18,340,000 for the year ended December 31, 1998. These expenses consisted
primarily of salaries and related expenses for the development of our business,
network architecture and software, the establishment of our management team and
the development of corporate identification, promotional and advertising
materials.

Amortization of Deferred Stock Compensation. Amortization of deferred
compensation was $174,000 in 1997 and $2,664,000 for the year ended December
31, 1998.

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<PAGE>

Depreciation and Amortization. Depreciation and amortization expenses were
approximately $27,000 for 1997 and $1,319,000 for the year ended December 31,
1998. Such expenses consisted primarily of depreciation of network equipment,
information systems, office equipment, furniture and fixtures and amortization
of leasehold improvements.

Interest Income and Expense. We incurred minimal interest expense in 1997.
Interest expense in 1998 was approximately $3,694,000. Interest expense for the
year ended December 31, 1998 includes amortization of $1,868,000 and $198,000
related to debt discount recorded in conjunction with the issuance of bridge
loan warrants and equipment lease warrants, respectively. Interest income was
approximately $190,000 for 1997 and $209,000 for the year ended December 31,
1998. This interest income was earned primarily from the proceeds raised in the
Series B preferred stock financing in August 1997.

Quarterly Financial Information (Unaudited)

The following table sets forth certain consolidated statements of operations
data for our most recent ten quarters. This information has been derived from
our unaudited consolidated financial statements. In our management's opinion,
this unaudited information has been prepared on the same basis as the annual
consolidated financial statements and includes all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of the
information for the quarters presented. This information should be read in
conjunction with our consolidated financial statements and the related notes
included elsewhere in this report. The operating results for any quarter are
not necessarily indicative of results for any future period.

<TABLE>
<CAPTION>
Three Months Ended ($ in thousands)
---------------------------------------------------------------------------------------------------
Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1997 1997 1998 1998 1998 1998 1999 1999 1999 1999
--------- -------- -------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $ -- $ -- $ 35 $ 128 $ 237 $ 531 $ 1,283 $ 2,504 $ 5,734 $ 11,619
----- ------- ------- ------- ------- -------- -------- -------- -------- --------
Operating expenses:
Network expenses..... 5 51 145 263 851 2,711 3,932 7,801 13,547 25,074
Selling, marketing,
general and
administrative...... 511 863 1,542 2,565 4,505 9,728 14,379 23,914 34,203 45,402
Amortization of
deferred stock
compensation........ 40 134 200 334 1,038 1,092 1,592 1,215 1,404 1,195
Depreciation and
amortization........ 6 21 77 195 321 726 1,387 2,813 5,226 6,481
----- ------- ------- ------- ------- -------- -------- -------- -------- --------
Total operating
expenses............ 562 1,069 1,964 3,357 6,715 14,257 21,290 35,743 54,380 78,152
----- ------- ------- ------- ------- -------- -------- -------- -------- --------
Loss from
operations.......... (562) (1,069) (1,929) (3,229) (6,478) (13,726) (20,007) (33,239) (48,646) (66,533)
Interest income...... 64 126 106 50 19 34 238 3,026 4,709 4,337
Interest expenses.... -- -- (47) (75) (1,323) (2,249) (3,583) (7,689) (2,554) (13,757)
----- ------- ------- ------- ------- -------- -------- -------- -------- --------
Net Loss............. $(498) $ (943) $(1,870) $(3,254) $(7,782) $(15,941) $(23,352) $(37,902) $(46,491) $(75,953)
===== ======= ======= ======= ======= ======== ======== ======== ======== ========
</TABLE>

We have generated greater revenues in each successive quarter in the last
eight quarters, reflecting increases in the number of customers and end users.
Our network expenses have increased in every quarter, reflecting costs
associated with customer and end user growth and the deployment of our networks
in existing and new markets. Our selling, marketing, general and administrative
expenses have increased in every quarter and include operations, sales and
marketing costs associated with the acquisition of customers and end users,
including sales commissions, and the development of regional and corporate
infrastructure. Depreciation and amortization has increased in each quarter,
primarily reflecting the purchase of equipment associated with the deployment
of our networks. We have experienced increasing net losses on a quarterly basis
as we increased our capital expenditures and operating expenses. See "Risk
Factors--We Expect Our Losses and Negative Cash Flow to Continue."

Liquidity and Capital Resources

Our operations have required substantial capital investment for the
procurement, design and construction of our central office collocation space
improvements and cages, the purchase of telecommunications equipment and the
design and development of our networks. Capital expenditures were approximately
$41,550,000 for the year ended December 31, 1998 and $196,817,000 for the year
ended December 31, 1999.

45
<PAGE>

Although we have no material commitments for capital expenditures during
2000, we plan to make total capital expenditures in 2000 estimated at
$220,000,000 to $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 December 31, 1999, we had an accumulated operating deficit of
$213,985,000 and cash and cash equivalents of $95,019,000.

Net cash used in operating activities was $11,363,000 for the year ended
December 31, 1998 and $123,050,000 for the year ended December 31, 1999. The
net cash used in operations in both years was primarily due to net losses,
offset in part by increases in accrued expenses and accounts payable. The net
cash used in investing activities was $41,550,000 for the year ended December
31, 1998 and $316,521,000 for the year ended December 31, 1999. Investing
activities were principally acquisitions of property and equipment in both
years. Net cash provided by financing activities was $54,421,000 for the year
ended December 31, 1998, of which $4,441,000 related to the issuance of
preferred stock and $50,724,000 related to borrowings, offset in part by the
repayment of certain capital lease obligations of approximately $744,000. Net
cash provided by financing activities was approximately $523,634,000 for the
year ended December 31, 1999 and relates to the proceeds from the issuance of
common and preferred stock as well as borrowings under our secured credit
facilities.

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 credit facility consists of the following:

. Revolving credit facility in an amount up to $55,000,000. The revolving
credit facility is to be used for general corporate purposes. We have
not borrowed any amount under the revolving credit facility.

. Delayed draw term loan facility in the amount of $110,000,000. 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 credit facility also provides for the issuance of letters of credit on
our behalf by the lenders.

Borrowings under the credit facility are collateralized by a first priority
lien against substantially all of our assets. Our obligations under the 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 credit facility all of the capital stock of NorthPoint
Communications, Inc. held by us. The lenders under the credit facility have
agreed that the liens which collateralize the credit facility may also
collateralize an additional $50,000,000 of additional borrowings in the event
the 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

46
<PAGE>

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 proceeds to us were $386,441,000. 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, together with the proceeds
from the sale of senior notes in February 2000, 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.

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.

47
<PAGE>

BUSINESS

History

NorthPoint was founded in May 1997 by six former MFS/WorldCom executives who
developed and implemented the first commercial DSL service. We began offering
our network services in March 1998 and have since entered into strategic and
commercial relationships with Microsoft, Tandy (the parent company of the
RadioShack stores), Yahoo!, Excite@Home, SBC/Pacific Bell Internet Services,
Intel, Verio, Cable & Wireless, Frontier Corporation (a subsidiary of Global
Crossing Holdings Limited), Concentric Network, ICG Communications, Enron
Communications, Network Plus, Netopia, GTE, iBeam, Equinix, and High Speed
Access Corporation, among others. Most of these companies and The Carlyle
Group, Vulcan Ventures, Accel Partners, Benchmark Capital, Greylock and others
have invested in our company.

In May 1999, we sold 17,250,000 shares of our common stock in our initial
public offering with net proceeds to us of $386,441,000. In December 1999, we
entered into a secured credit facility with a syndicate of lenders which
provides us access to $250 million, $85 million of which has been drawn down.
In February 2000, we issued the old notes in the aggregate principal amount of
$400 million.

In February 2000, NorthPoint unveiled its plans to expand beyond the U.S.
broadband market by announcing a Canadian joint venture with Call-Net, Canada's
leading competitive service provider. Service will launch under the NorthPoint
brand in the third quarter of this year, subject to regulatory conditions.
Another foreign joint venture was announced in March 2000, between NorthPoint
and VersaTel Telecom International N.V., the leading alternative broadband
local access network operator in the Benelux and the Northwest Rhine region of
Germany. The new company, VersaPoint, will initially offer wholesale DSL
service in The Netherlands, Germany and Belgium (as the local loop is
unbundled), and then in other markets as they open in the European Union.

Industry Overview

Data communications is the fastest growing segment of the telecommunications
industry. Small- and medium-sized businesses, people working in home offices
and telecommuters are increasingly demanding high-speed data connections for
applications such as Internet access, intranets, extranets, telecommuting,
e-commerce, e-mail, video conferencing and multimedia.

The number of Internet users worldwide has increased substantially over the
last several years, reaching nearly 140 million in 1998. Forrester Research,
Inc. projects that the total market for data networking services and Internet
access will grow from $6.2 billion in 1997 to approximately $49.7 billion by
2002, of which approximately $27.9 billion will be from services to businesses.
Further, Forrester Research estimates that Internet commerce revenue could
reach $3.2 trillion by 2003.

International Data Corporation, or IDC, predicts that business DSL revenues
will grow from $300 million in 1999 to $5.6 billion by 2003 and that
residential DSL revenues will grow from $78 million in 1999 to $2.3 billion by
2003.

Small- and Medium-Sized Businesses. We expect that a significant portion of
the growth in data communications will be generated by small- and medium-sized
businesses with up to 500 employees. Data communications, including the
Internet, allow these businesses to compete more effectively by streamlining
communications among employees, customers and suppliers. However, to take full
advantage of these productivity-enhancing applications and the Internet, small-
and medium-sized businesses need high-speed, secure and dedicated data
connectivity.

Home Offices, Telecommuters and Residential Users. We expect that people
using computers from their homes to connect to corporate networks or to the
Internet for in-home business purposes will also be a significant source of
demand for high-speed data connectivity. According to IDC there were 26 million

48
<PAGE>

residences with computers in their home offices in the U.S. in 1998, growing to
an estimated 39.2 million by 2002. A significant portion of people who work in
home offices and telecommuters need access to corporate networks and/or the
Internet for a variety of applications, including e-mail, databases and
corporate intranets. According to The Yankee Group, the market for remote
access services is expected to grow from $460 million in 1998 to $2 billion by
2002.

Traditionally, small- and medium-sized businesses, people who work in home
offices and telecommuters have relied on low-speed lines for data transport.
For example, according to IDC, approximately 78% of Internet access revenues
derived from small- and medium-sized businesses in 1997 were generated through
the traditional telephone system, using relatively slow 28.8 to 56 kilobits per
second dial-up modems or integrated services digital network (ISDN) lines. For
higher speed connections, these end users have had to purchase T1 service, a
digital transmission link which is fast (1.544 megabits per second) and always-
on, but expensive (typically $300 to $1000 per month depending upon distance
and region).

Neither the slow dial-up modems and integrated services digital network
service nor the expensive T1 option is an adequate solution for most small- and
medium-sized businesses, people who work in home offices and telecommuters. The
lack of optimal price-performance solutions has left these end users
underserved, since when using a T1 service, the cost is high, and when using a
dial-up modem or integrated-services digital network service, the speed of data
transmission is slow.

Our Solution

We believe that our DSL networks and the wide range of price-performance
data transport options we provide meet the demands of this large, underserved
group of end users. We attach high-speed digital equipment at both ends of a
copper line, allowing data transmission to bypass the components of the
traditional telephone system that are responsible for creating the local data
bottleneck. By using our services with their own Internet access and other data
applications, our network service provider customers--Internet service
providers, long-distance and local telephone companies, and data service
providers--can offer small- and medium-sized businesses, people who work in
home offices and telecommuters:

. A Range of Speed Options. We offer a wide range of data transport
speeds, each with a combination of price and performance that is
superior to traditional options.

. Scaleable Services. End users can upgrade service to higher performance
levels without adding hardware.

. Always-On Connectivity. Traditional networks require a user or system to
dial a phone number and wait while the modem connects to a data service
provider such as an Internet service provider. Our service is always on,
providing instantaneous connections and the capability to receive or
transmit information continuously.

. Reliability. We can remotely monitor and troubleshoot an end user's
connection to ensure reliable performance.

. Secure Transport of Sensitive Business Data. We offer our services over
dedicated copper telephone lines, which ensures that data is protected
on its path to and from an end user.

Our networks and services offer a number of advantages to our network
service provider customers over alternative local access solutions, including:

. A Rapid, Capital-Efficient Method for Providing Service in a
Metropolitan Area. By connecting at one point to each of our
metropolitan networks, a network service provider can immediately offer
service to any end user within the geographic boundaries served by
traditional telephone company central offices in which we have installed
our equipment. Using our networks in this way reduces the capital and
operating investment a network service provider would otherwise need to
reach end users in metropolitan areas that we serve.

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<PAGE>

. Electronic Connections to Our National Operations Support Systems. We
provide our customers an electronic connection to our national pre-
qualification, order entry, customer support, provisioning, accounting
and billing systems. This provides streamlined operations and lower
overhead costs for our customers.

. Guaranteed Data Transmission Speeds and Service Quality. We guarantee
data throughput at high speeds on our networks.

. Continuously Monitored Networks. We have remote monitoring capabilities
and continuously monitor the entire network from our network control
center. We use three methods to monitor our networks so that we can
continue to monitor the networks even if one or two methods fail.

Strategy

Our objective is to become the leading national provider of local data
networks and transport services to network service providers serving small- and
medium-sized businesses, people who work in home offices and telecommuters. To
achieve this objective, we will:

. Focus Initially on Business District Central Offices. Before entering a
market, we prepare a detailed analysis of that market's central office
service areas using industry data and business demographic statistics.
We use this analysis to identify attractive service areas and develop a
schedule for network deployment and expansion. We have initially
targeted central offices in those target markets with the highest
density of small- and medium-sized businesses. Based upon our analysis,
we believe that when complete, our networks will be able to reach
approximately 5.5 million businesses, including more than 80% of the
small- and medium-sized businesses in our 60 markets. By focusing
initially on high-density business districts, we believe we can secure
scarce space in central offices, open markets more rapidly, maximize the
economic return from our capital expenditures and enable our customers
to address a significant portion of their target end users in each
geographic market quickly.

. Enter Markets Early. We seek to obtain an advantage by being the first,
or one of the first, DSL providers in our target markets to offer
optimized local data transport solutions. We believe that the first
mover advantage is valuable because after a network service provider
establishes a relationship with a local data network service provider,
there are costs associated with adding additional providers or switching
providers. We are already providing services to network service
providers in 37 metropolitan areas.

. Rapidly Expand Our National Presence. Our goal is to offer local data
network and transport services to our customers in 60 metropolitan areas
by year-end 2000. We expect that offering high speed local data
transport solutions in many metropolitan areas will make our services
more attractive to national and regional network service providers by
enabling them to use our single system interface and uniform
provisioning procedures in each of our markets.

. Design Networks for Business End Users. Our networks are designed for
business users and business applications and have the appropriate
security, reliability and performance characteristics for those users
and applications. Currently, we are using a type of DSL technology that
permits symmetric data transmission--the same speed of data transport to
and from the end user--which we believe is the best-suited for most
business applications. We believe that business end users will not
compromise the security, reliability and performance of their data
connections and are willing to pay for those features.

. Focus on Wholesale Marketing. We market our local data transport
solutions on a wholesale basis to network service providers who, in
turn, sell to and support end users. By marketing to network service
providers, we:

. minimize sales and marketing expenses by enabling our sales force to
focus on prospective high-volume wholesale customers;

50
<PAGE>

. amortize the cost of our fixed capital expenses over a large base of
end users more rapidly;

. minimize our end user support costs; and

. achieve a nationwide presence more quickly.

. Provide Excellent Customer Service. We are dedicated to providing our
customers and their end users superior customer support and service. Our
systems provide management reports and other critical, real-time data
for our network service provider customers.

. Exploit Our Scaleable Systems. Our operations support systems have been
designed to take advantage of efficiencies in our digital networks and
can grow with our business. We believe that these systems, including our
electronic connections to traditional telephone companies, will minimize
our overhead and increase both customer and end user satisfaction. Our
systems also give us the capability to monitor usage by our network
service providers' end users and notify network service providers when
an end user's usage patterns indicate that an upgrade in speed is
warranted. These upgrades can be performed remotely and require no
additional capital expenditures.

. Continue to Develop Strategic Relationships. We have entered into
strategic relationships with Microsoft, Tandy, Yahoo!, Excite@Home,
SBC/Pacific Bell Internet Services, Intel, Verio, Cable & Wireless,
Frontier Corporation (a subsidiary of Global Crossing Holdings Limited),
Concentric Network, ICG Communications, Enron Communications, Network
Plus, Netopia, iBeam, Equinix, and High Speed Access Corporation. We
anticipate entering into additional relationships with others. We
believe that these relationships are valuable because they provide
additional technical, marketing and distribution expertise and, in some
cases, involve capital investment and guaranteed or targeted numbers of
new end-user lines.

We plan to work closely with our strategic partners to maximize the
mutual benefit of these relationships. For example, we recently
expanded our longstanding relationships with Microsoft and Tandy to be
the exclusive DSL provider for Tandy's RadioShack customers that
purchase broadband Internet access from Microsoft at RadioShack stores
located within our market footprint.

. Extend Product Offering to the Residential Market. The establishment of
a uniform ADSL standard called g.lite and a recent FCC decision
requiring traditional telephone companies to share the use of a single
phone line for both voice and data have created a favorable environment
for us to begin offering a lower-priced residential product. This
product will be targeted at the approximately 45 million households in
the U.S. that we believe we will be able to reach upon completion of our
planned expansion. We plan to leverage our existing relationships with
Tandy, Microsoft and other channel partners to facilitate the
distribution of this product offering.

. Develop New Data Products and Solutions. We intend to expand our product
offerings by providing additional value-added services over our networks
and enhanced transport solutions.

51
<PAGE>

Our Markets

We currently provide service in 37 metropolitan areas and intend to offer
services in a total of 60 metropolitan areas by the end of this year. We
believe that offering local data network and transport services in many areas
makes our services more attractive to national and regional network service
providers because they can use our single system interface and uniform
provisioning procedures in each of our markets. Our existing and planned
markets for 2000 are:

<TABLE>
<CAPTION>
West Central East
- ---- ------- ----
<S> <C> <C>
Fresno Albuquerque Albany
Las Vegas *Austin *Atlanta
*Los Angeles(1) Birmingham *Baltimore
*Phoenix *Chicago *Boston
*Portland *Cincinnati Buffalo
*Sacramento *Cleveland *Charlotte
*Salt Lake City *Columbus Greensboro
*San Diego *Dallas Harrisburg
*San Francisco Bay Area(2) Dayton *Hartford
Santa Barbara *Denver Jacksonville
*Seattle *Detroit *Miami/Fort Lauderdale
Tucson Grand Rapids *New York(3)
*Houston Norfolk
*Indianapolis *Orlando
*Kansas City *Philadelphia
Louisville *Providence
Memphis *Raleigh-Durham
*Milwaukee Rochester
*Minneapolis Richmond
Nashville Syracuse
New Orleans *Tampa-St. Petersburg
Oklahoma City *Washington, D.C.(4)
*Pittsburgh
*San Antonio
*St. Louis
Wichita
</TABLE>
- --------
* Markets in which we currently provide services.
(1) Includes Orange County.
(2) Includes San Francisco, Oakland and San Jose.
(3) Includes northern New Jersey.
(4) Includes northern Virginia and parts of Maryland.

52
<PAGE>

Network Architecture

We establish each of our regional networks by installing digital
communications equipment in the traditional telephone company central offices
with the highest density of small- and medium-sized businesses. DSL technology
provides for high speed transmission of information over existing copper
telephone lines by encoding the information in a digital format. Our equipment
uses this technology to transmit high speed data over copper lines between the
central office and the end user. In turn, we connect our equipment in each
central office to our metropolitan node, a facility where data is collected in
each metropolitan area. Our customers in each metropolitan area are connected,
typically by leased fiber optic lines, to the metropolitan node. For our
customers, having this single point of interconnection with us in each city
reduces their capital expenditures and local network costs because we aggregate
and disseminate their traffic to and from a central place. By leasing and
reusing the existing copper wire and fiber optic infrastructure, we are able to
use our capital to purchase and develop value-added elements of the network,
including packet switches, digital communications equipment for each central
office, and operations support systems.

Our Equipment. We install DSL modems at the end user's premises and lease
copper telephone wires from the traditional telephone company. These wires run
from the end user's premises to the central office of the telephone company,
where we lease space under tariff or renewable interconnection agreements.
Within this space, we maintain equipment that connects to the local copper
wires. Our central office equipment supplies the digital line code that enables
high speed data transport over copper lines, organizes that data into packets
and aggregates end-user traffic for transport to and from our metropolitan
node. Data traffic is aggregated from various central offices at the
metropolitan node and then transported to the network service providers over
leased fiber optic lines. Our systems allow data transmission to bypass the
components of the traditional telephone system that are responsible for
creating inefficient data transmission. Therefore, while using the existing
copper telephone wires from each end user to the central office, we are able to
offer high speed data transmission.

Central Office Installation. We contract with Lucent on a per-order basis to
install our equipment in all traditional telephone company central offices in
which we have space nationwide. Lucent preconfigures this equipment in
accordance with our blueprint and ships it to our central offices for
installation by Lucent's field operations personnel. We maintain our own field
operations personnel to oversee this process and for subsequent maintenance and
upgrades of the central office equipment.

Sales and Marketing

We provide local data network and transport services on a wholesale basis to
Internet service providers, long-distance and local telephone companies, and
data service providers, whom we call network service providers. Our customers
bundle our services with Internet access or other data-intensive applications
for their customers, who are typically small- and medium-sized businesses,
people who work in home offices and telecommuters. We are providing or have
entered into agreements to provide our services to more than 200 network
service providers and have connected over 41,300 of their end users.

Our Sales Staff. We sell exclusively through wholesale channels. Our
indirect sales and support model allows us to benefit from the sales and
support organization of our customers, and upon implementation of the Company's
signed agreement with Tandy, 2,000 Tandy-owned RadioShack stores nationwide.
Our 165 member sales organization currently consists of account executives who
are responsible for securing new customers and assisting customers in
increasing the number of end users. The account executives are supported by
regional marketing managers who provide localized marketing, competitive
analysis, cooperative marketing programs, and sales support within each of our
current 37 markets. As of December 31, 1999, we had 165 dedicated sales staff,
including 9 temporary personnel. We intend to increase the size of our sales
and marketing staff as we enter an additional 23 markets by year-end 2000.

53
<PAGE>

Business Quality Services. Our networks and data transport services have
been designed to enable our customers to meet the rapidly increasing
information needs of their end users. By using NorthPoint's networks, network
service providers can offer data services with better price and performance
characteristics than dial-up and integrated services digital network modems and
1.54 megabit per second connections. Our current range of services and pricing
(before volume discounts) in California (although pricing in other markets may
vary) is as follows. Some of our higher speed services may be unavailable to
certain end users whose premises are too far from a central office.

NorthPoint Business Quality Service Offerings

<TABLE>
<CAPTION>
Monthly Pricing
--------------------
Connection Speed NorthPoint ILEC
- ---------------- ---------- ---------
<S> <C> <C>
56 kbps.................................................... -- $ 125
128 kbps (ISDN Speed)...................................... -- $ 40-200
144 kbps................................................... $ 75 --
160 kbps................................................... $ 75 --
200 kbps................................................... $ 90 --
416 kbps................................................... $125 --
784 kbps................................................... $165 --
1.04 Mbps.................................................. $199 --
1.54 Mbps (T1 Speed)....................................... $250 $300-1000
</TABLE>
- --------
* As represented above, 56 kbps service is dedicated.
ISDN pricing is usage-based.
ILEC T1 pricing varies by distance between the end user and the service
provider.

Each of our existing services is symmetric, providing the same speed to and
from the end user. We believe that this design is well-suited for business data
applications such as Internet access, intranets, extranets, telecommuting, e-
commerce, e-mail, video conferencing and multimedia.

54
<PAGE>

The table below summarizes our business quality services and the targeted
end users for each service. Some of our higher speed services may be
unavailable to certain end users whose premises are too far from a central
office. The column marked "Maximum Range (feet)" in the following table means
the estimated maximum distance between a central office and the end user for
each of our services.

<TABLE>
<CAPTION>
Speed Wholesale Maximum
Speed to From End Price Range
Service End User User ($/mo.) (feet) Use/Market
- ------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <S>
NorthPoint DSL 144 144 kbps 144 kbps 75 35,000 . ubiquitous flat-rate
service at speeds
comparable to
integrated services
digital network (ISDN)
- ------------------------------------------------------------------------------------
NorthPoint DSL 160 160 kbps 160 kbps 75 24,000 . always on e-mail and
web browsing solution
for individuals
- ------------------------------------------------------------------------------------
NorthPoint DSL 200 200 kbps 200 kbps 90 22,850 . small businesses of
less than four
employees with
standard e-mail and
web usage
- ------------------------------------------------------------------------------------
NorthPoint DSL 416 416 kbps 416 kbps 125 18,000 . e-mail and higher
bandwidth Internet
solution for small
businesses with less
than 10 employees
- ------------------------------------------------------------------------------------
NorthPoint DSL 784 784 kbps 784 kbps 165 13,500 . remote local area
network access, web
surfing for businesses
under 25 employees
. supports high-bandwith
intensive e-commerce
and video-conferencing
applications
- ------------------------------------------------------------------------------------
NorthPoint DSL 1.04 1.04 Mbps 1.04 Mbps 199 12,350 . remote local area
network access, web
surfing for businesses
. supports large file
transfers and web
hosting
- ------------------------------------------------------------------------------------
NorthPoint DSL T1 1.54 Mbps 1.54 Mbps 250 10,000 . T1 performance
. pricing not distance-
sensitive
</TABLE>

Performance Upgrades. We can remotely increase an end user's speed from 160
kilobits per second through 1.54 megabits per second without upgrading the
equipment located at the end user's premises. Remote upgrades allow an end user
to have improved performance without service interruptions or additional
equipment investment. Approximately 62% of the end users currently connected to
our networks are within 10,000 feet of the central office and can be upgraded
to our fastest service. In general, we expect that end users' needs will evolve
over time, resulting in demand for faster connections. The cost to upgrade an
end user's speed is minimal and the cost to provide faster service is not
substantial.

55
<PAGE>

The Value Proposition to Network Service Providers. In addition to providing
reliable, high quality data network services, we offer our customers:

. Immediate, Capital-Efficient Access to Markets. In the past, network
service providers would have had to make significant capital investments
to provide dedicated data services in their targeted service areas. With
a single connection to our metropolitan node, however, network service
providers can immediately provide high speed dedicated data services to
end users connected to each central office we serve in that metropolitan
area. Using our networks in this way reduces the capital investment a
network service provider would otherwise need to reach end users in our
metropolitan areas and enables network service providers to provide
services in any or all of our markets more quickly than if they built
their own network infrastructure.

. Single-Source Provider. We serve as a single-source provider to our
customers. Because we maintain the physical connection with the
traditional telephone company in each market and assume responsibility
for managing all end-user installations and for monitoring and managing
our data networks, the network service provider does not need to have
relationships with traditional telephone companies, inside wiring
companies or equipment maintenance and monitoring service providers.

. Avoidance of Regulatory Burden. To provide DSL service on its own, an
Internet service provider or other data service provider would have to
be authorized as a competitive telecommunications company in each state
in which it planned to provide service. Network service providers who
partner with us avoid the costs, delays and complexities of achieving
competitive telecommunications company status in each market.

. Transparent Service Delivery to End Users. Our automated order entry,
provisioning and maintenance systems are designed to allow network
service providers to interface directly with our support systems and
provide their end users with completely transparent service delivery.
Our systems also enable our network service providers to pre-qualify
prospective end users. The end user receives a bill from the network
service provider and is not billed by the traditional telephone
companies or NorthPoint.

. Electronic Interfaces. We have designed our national operations support
systems to interface directly with network service providers' existing
provisioning, management, accounting and billing systems. This enables
two-way trouble ticketing and secure connections for both proactive and
query-based status checking on all aspects of service delivery and
billing.

. Broad Range of Speeds and Prices. Our wide range of price and
performance options enables network service providers to match their
service offerings with an end user's specific need for data transmission
capacity. Current options available from traditional telephone companies
are more limited and often fail to address the needs of small- and
medium-sized businesses, people who work in home offices and
telecommuters.

. Identification of Service Upgrade Opportunities. As an end user's data
transmission needs evolve, our operations support systems track end user
usage and identify opportunities on a timely basis for the network
service provider to recommend service upgrades to its end users.

. Reliability and Guaranteed Data Transmission Speeds. We design our
networks for business-quality service, including 24 hours a day, 7 days
a week monitoring, network management links, guaranteed data throughput
and consistent high speed transmission.

. Secure Connections. Our network architecture enables network service
providers to offer to their end users applications that require a secure
connection for transmission of sensitive data.

. Marketing Support. We support our customers by providing sales leads,
co-marketing programs and training for network service provider sales
and service representatives.

56
<PAGE>

Residential Product Offering

We have begun to extend our existing business plan to address the broader
residential market. The following are key components of this strategy:

. Use Existing and Planned Network Coverage. We will use our network
infrastructure assets to reduce deployment costs and accelerate our
entry into the residential market. Upon completion of our planned
expansion, we will be able to reach approximately 45 million households.

. Leverage Strategic Partnerships with Tandy and Microsoft. Tandy, the
parent company of RadioShack, will be our primary distribution channel
for the residential service offering. We estimate that approximately
2,000 RadioShack stores nationwide will be within our footprint by the
end of 2000. In addition, Microsoft recently signed an agreement with
Tandy to offer its MSN services bundled with NorthPoint DSL service
through RadioShack stores.

. Develop g.lite Product. We have been actively engaged in technology
trials of the g.lite standard in conjunction with Intel. We believe that
a residential service offering based on this standard should result in
lower costs, streamlined service activation and end-user modems that are
universally compatible. The technology supports both data and voice
services over a single copper pair.

Aggressively Pursue Implementation of Key Regulatory Initiatives. A recent
FCC decision requires traditional telephone companies to allow competitive
carriers like us the ability to offer DSL services over an end user's primary
voice line. Once implemented, this ruling would eliminate the need for
installing a second line and would result in a significant reduction in the
costs to us of recurring and non-recurring charges for the copper loop that we
lease from the traditional telephone companies. We expect that it will take six
to nine months to implement the requirements of this line sharing decision.

Operations Support Systems

Our operations support systems are designed to grow with our business and
provide us with significantly enhanced operational efficiencies.

Connections to Our Customers. Our Web-based ordering system not only allows
network service providers to place orders on-line, but assists them in
marketing the service to new and existing end users, as well as pre-qualifying
prospective end users for the maximum level of service that will be available
to them. Our systems also interface with our customers' management,
provisioning, accounting and billing systems. Our network statistics allow the
network service provider to track historical usage and suggest service upgrades
based upon customer need.

Connections to the Traditional Telephone Companies. We have implemented
electronic connections with Pacific Bell and Ameritech, are in implementation
testing with Bell Atlantic, and are in development stage with three additional
ILEC suppliers. The connections will provide us with a single electronic
ordering interface and will facilitate provisioning large volumes of orders.

Deployment and Operations

To provide and monitor data transport services to end users, network service
providers have traditionally been required to coordinate multiple service and
equipment suppliers. We act as a single-source provider of a network service
provider's local data networking and transport needs, eliminating both
complexity and inconvenience for our customers.

Interconnecting With New Network Service Providers. When a network service
provider decides to use our services in a metropolitan market, we arrange for
the leasing, testing and monitoring of a fiber connection between our
metropolitan node in the area and the network service provider's local point of
presence. Our customers pay a monthly fee for the connection and for our data
traffic aggregation and monitoring services.

57
<PAGE>

Provisioning with the Traditional Telephone Company. We order from the
traditional telephone companies and test copper wire loops that link central
offices and end users. In most cases, if the line is not testing to our
specifications at the time of provisioning or later, our network control center
is able to help the traditional telephone company pinpoint the source of the
problem.

End User Installation. We contract with third parties for the installation
of lines to end users, including any necessary wiring inside end users'
premises. Our contractors also deliver, install and test the customer premise
equipment and test the connection over our network. Our network service
provider customer generally pays an installation charge to us and sells the
modem and/or other customer premise equipment to the end user.

Network Monitoring. We monitor all of our metropolitan networks from our
network control center on a continuous basis, enabling us to identify and
resolve network problems before they affect our customers or their end users.
The network control center maintains visibility into each element of our
networks, allowing us to provide reliable service and efficient customer
installation, as well as rapid responses to customer inquiries.

Key Strategic and Commercial Relationships

We have entered into strategic and commercial relationships that we believe
are valuable because they provide additional technical, marketing and
distribution expertise and, in some cases, involve capital investment and
guaranteed or targeted numbers of new end-user lines. We anticipate entering
into additional strategic and commercial relationships with others.

Our strategic and commercial relationships, and the corresponding
investments in our capital stock by the companies with which we have such
relationships, include:

<TABLE>
<CAPTION>
Investment in
NorthPoint
(millions) Description
------------- -----------
<C> <C> <S>
Microsoft Corporation............ $30.0 Software and services company

Tandy Corporation................ 20.0 Parent company of the
RadioShack electronics,
computing and communications
stores

Verio Inc. ...................... 10.0 Business Internet solutions
provider, targeting small- and
medium-sized businesses

ICG Communications, Inc. ........ 10.0 Competitive integrated
communications provider

Excite@Home...................... 8.0 Broadband data service
provider with a division,
@Work, focused on small- and
medium-sized businesses

Cable & Wireless USA, Inc. ...... 5.0 Affiliate of multinational
telecommunications company
with extensive international
data and Internet business

Concentric Network Corporation... 5.0 Internet service provider,
targeting small- and medium-
sized businesses

Frontier Corporation............. 4.9 Integrated communications
provider offering services in
major markets across the U.S.
through its subsidiaries
(a wholly owned subsidiary of
Global Crossing Holdings
Limited)

Network Plus Corporation......... 2.5 Integrated communications
provider targeting small- and
medium-sized businesses in the
Northeast and Southwest

Intel Corporation................ 2.0 Designs, develops,
manufactures and markets
computer components and
related products at various
levels of integration

Netopia, Inc..................... 1.0 Develops, markets and supports
products and services to
enable businesses to use the
Internet

Enron Communications, Inc........ -- Network applications provider
delivering broadband content
and applications to businesses
in the U.S.

Yahoo!........................... -- Global Internet media company
offering a branded network of
information, communication and
shopping services
</TABLE>

58
<PAGE>

<TABLE>
<CAPTION>
Investment in
NorthPoint
(millions) Description
------------- -----------
<C> <C> <S>
SBC/Pacific Bell Internet Services.. -- Provides landline and
wireless telecommunications
services and equipment,
directory advertising,
publishing services and
Internet access services

Equinix............................. -- Owns and operates Internet
Business Exchange centers,
which provide tariff free
interconnection points for
Carriers, Internet Service
Providers, Content
Providers, and Component
Services Providers

iBeam............................... -- Provides multimedia
streaming content over the
Internet delivered via
satellite

High Speed Access Corporation....... -- Provides high-speed
Internet access via cable
modems to residential and
commercial customers.
</TABLE>

Microsoft. Microsoft purchased $30 million of our common stock in our IPO.
In April 1999, NorthPoint entered into a strategic relationship with Microsoft.
Under the two-year commercial agreement with Microsoft, NorthPoint and
Microsoft will jointly market and promote NorthPoint's DSL services, and
Microsoft intends to use its existing channels, websites and direct sales force
to augment NorthPoint's marketing efforts. Together, NorthPoint and Microsoft
will also develop the specifications for an open standard to allow broadband
content and application providers to optimize the use of high-speed networks to
deliver their products and services. Microsoft will also provide software
consulting services to NorthPoint. In addition, Microsoft received a warrant to
purchase an additional $30 million of Class B common stock at a price equal to
50% above the initial public offering price.

In September 1999, Microsoft launched the Windows Media Broadband Jumpstart
initiative. The Microsoft program, which leverages the success of Windows Media
Technologies, intends to stimulate broadband technology adoption by providing a
comprehensive solution that tackles the major industry barriers. Microsoft will
work with several industry partners including NorthPoint to provide consumers
with high-quality broadband services, compelling new broadband content and
improved performance. Through the development of the existing NorthPoint and
Microsoft relationship, the partnership will help to address the infrastructure
required to deliver broadband content. In addition, Microsoft and NorthPoint
have collaborated on DSL services offered within Microsoft's bCentral business
portal. bCentral users searching for high-quality DSL services can instantly
determine DSL availability at their business address using the NorthPoint pre-
qualification tools and place an order directly with NorthPoint from the
bCentral site.

In December 1999, NorthPoint and Microsoft expanded their strategic
relationship through a four year agreement under which NorthPoint will serve as
the preferred DSL service provider for Microsoft's MSN Internet Access offering
in Tandy's RadioShack stores located within NorthPoint's network footprint.
MSN, powered by NorthPoint DSL, will also be available through other Microsoft
sales channels. In addition, the agreement provides that NorthPoint and
Microsoft will develop enhanced services and content designed for DSL-enabled
consumers and to make these services available from the MSN portal.

Tandy. Tandy purchased $20 million of our common stock in our IPO. In April
1999, NorthPoint entered into a strategic alliance with Tandy, parent company
of the RadioShack stores. Under the terms of the five-year agreement, Tandy
designated NorthPoint a preferred provider of DSL services for sale to its
customers in markets NorthPoint serves. NorthPoint expects its network to cover
approximately 2,000 Tandy-owned RadioShack stores nationwide by the end of
2000. In these stores, RadioShack will demonstrate NorthPoint's services and
sell high-speed Internet access using the Company's network services.
NorthPoint and Tandy have agreed to install DSL connections and certain
hardware in RadioShack stores that will be selling NorthPoint's services.

Verio. In March 1999, NorthPoint entered into a strategic relationship with
Verio. Verio has designated NorthPoint as its preferred provider in 21 of its
existing 33 markets. Verio also committed to purchase a specified number of DSL
lines over the two-year term of the agreement. As part of this agreement, Verio
markets NorthPoint DSL services through a broadcast media campaign including
television and radio

59
<PAGE>

advertisements in which the NorthPoint DSL service is "co-branded" with Verio's
Internet services. In connection with these agreements, Verio provided
NorthPoint with $5.6 million pursuant to a subordinated convertible promissory
note and invested $4.4 million in NorthPoint's Series D-1 preferred stock.
Verio's $10 million investment converted into Class B common stock at the time
of our IPO.

ICG. In March 1999, NorthPoint entered into several strategic agreements
with subsidiaries of ICG. Pursuant to these agreements, ICG designated
NorthPoint as its preferred provider of DSL services, sold NorthPoint all of
its DSL network equipment, agreed to share certain of its central office space
with NorthPoint, committed to purchase a specified number of DSL lines and
agreed to provide NorthPoint with local transport services. In conjunction with
these agreements, ICG invested $10 million in the Company's Series D-1
preferred stock, which converted into Class B common stock at the time of our
IPO.

Excite@Home. In June 1998, NorthPoint entered into a strategic agreement
with @Work (a division of Excite@Home) in which @Work agreed to sell
NorthPoint's services to its small- and medium-sized business customers. In
March 1999, NorthPoint entered into an amended agreement with @Work in which
@Work established targeted volume commitment levels and agreed to jointly
develop and implement marketing programs to expand the demand for @Work DSL
lines supplied by NorthPoint. In addition, Excite@Home and NorthPoint will
jointly pursue additional online activities that will provide services to
small- and medium-sized businesses and promote awareness of NorthPoint's
services. In July 1998, Excite@Home purchased $2 million of NorthPoint's Series
C preferred stock and in March 1999, it invested $6 million in Series D-1
preferred stock. The Series C preferred stock converted to common stock and the
Series D-1 converted into Class B common stock at the time of our IPO.

Cable & Wireless. In March 1999, NorthPoint signed a two-year agreement with
Cable & Wireless in which NorthPoint was designated as Cable & Wireless'
preferred DSL provider in the U.S. NorthPoint will work with Cable & Wireless
to develop new products for the domestic and international markets, as well as
to jointly market DSL and other products. In conjunction with the agreement,
Cable & Wireless invested $5 million in NorthPoint's Series D-1 preferred
stock, which converted into Class B common stock at the time of our IPO.

Concentric. In April 1999, Concentric committed to purchase a specified
number of DSL lines over the two-year term of the strategic agreement with
NorthPoint. Concentric also agreed to use NorthPoint's services in 20
metropolitan areas, in addition to the seven metropolitan areas in which they
currently offer services. In addition, Concentric and NorthPoint will undertake
development and co-marketing of new products. In conjunction with the
agreement, Concentric invested $5 million in NorthPoint's Series D-1 preferred
stock, which converted into Class B common stock at the time of our IPO.

Frontier. In April 1999, a subsidiary of Frontier signed a strategic
development and services agreement with NorthPoint. In the two-year agreement,
Frontier designated NorthPoint as a preferred provider of DSL services. In
addition, NorthPoint and Frontier will jointly undertake development of new
products and systems interfaces. NorthPoint may also purchase transport,
hosting, peering and collocation services from Frontier. In conjunction with
the agreement, another affiliate of Frontier invested $4.9 million in
NorthPoint's Series D-1 preferred stock, which converted into Class B common
stock at the time of our IPO. Frontier was recently acquired by Global Crossing
Holdings Limited.

Network Plus. In March 1999, NorthPoint entered into a two-year agreement
with Network Plus in which NorthPoint was designated as Network Plus' preferred
provider of DSL lines. Network Plus also committed to purchase a specific
number of DSL Lines. NorthPoint will also work with Network Plus to develop new
products. In conjunction with the agreement, Network Plus invested $2.5 million
in NorthPoint's Series D-1 preferred stock, which converted into Class B common
stock at the time of our IPO.

Intel. NorthPoint has entered into a strategic relationship with Intel, a
company that designs, develops, manufactures and markets computer components
and related products at various levels of integration. Intel is also one of the
supporters of the g.lite specification for a consumer version of DSL.
NorthPoint is working with

60
<PAGE>

Intel to enhance service offerings. In August 1998, Intel purchased $2 million
of NorthPoint's Series C preferred stock and acquired warrants to purchase
212,568 shares of NorthPoint's common stock at the same price per share. The
Series C converted to common stock at the time of our IPO.

Netopia. In April 1999, Netopia designated NorthPoint as the preferred
provider for its Small Business DSL Education Center and DSL Affiliate Program
on the GeoCities Internet Portal website. This partnership allows NorthPoint to
receive customer referrals as a result of Netopia's and GeoCities' promotional
activities. The approximately 3.5 million GeoCities website owners (called
Homesteaders) will have the opportunity to participate in the Netopia DSL
Affiliate Program and the approximately 19.5 million GeoCities visitors per
month will have the opportunity to visit the DSL Education Center. In
conjunction with the agreement, Netopia invested $1 million in NorthPoint's
Series D-1 preferred stock, which converted into Class B common stock at the
time of our IPO.

Enron Communications. In April 1999, Enron Communications entered into a
strategic product distribution agreement with NorthPoint. Under this agreement,
NorthPoint's networks will deliver Enron's advanced, broadband applications to
end users on the Company's networks. NorthPoint will receive a portion of the
revenue generated by such applications. NorthPoint and Enron have agreed to
cooperate in distributing future products and applications that meet the needs
of their customers and end users and will jointly promote such services to the
Company's NSPs. Enron Communications is the communications subsidiary of Enron
Corp., one of the world's leading integrated natural gas and electricity
companies.

Yahoo!. In November 1999, NorthPoint entered a strategic relationship with
Yahoo! to offer high-quality broadband streaming media solutions. The
relationship includes the creation of a co-branded broadband portal
(http://northpoint.my.yahoo.com) to serve as an entry point to broadband
enabled content and applications provided over the NorthPoint DSL network.
NorthPoint and Yahoo! will market the co-branded start page with NorthPoint DSL
service. The agreement will provide Yahoo! users with a path to NorthPoint DSL
to access the bandwidth necessary for advanced Internet applications and
specialized content and services designed for broadband enabled businesses and
consumers. The content will include streaming audio, video, and other
multimedia applications that require a high bandwidth connection.

SBC/Pacific Bell Internet Services. In October 1999, NorthPoint entered into
an agreement with Pacific Bell Internet Services, a division of SBC
Communications. Under the terms of the agreement, NorthPoint will provide IDSL
services to Pacific Bell Internet Services in the company's California
territory. The relationship will enhance the DSL coverage capability of Pacific
Bell Internet Services as part of SBC Communications' Project Pronto broadband
initiative. The relationship with NorthPoint extends the reach of Pacific Bell
Internet Services DSL offerings beyond 17,500 feet from the Pacific Bell
central offices.

Equinix. In October 1999, NorthPoint entered into a strategic relationship
with Equinix, a provider of collocation space for Internet Service Providers,
Content Service Providers, and Component Service Providers. The relationship
enables NorthPoint to access an aggregated population of service providers
collocated within the Equinix Internet Business Exchanges. In exchange for this
access, NorthPoint will collocate in selected Equinix facilities. In order to
facilitate interconnection operations, NorthPoint will encourage existing and
future NorthPoint partners to collocate within the Equinix facilities. The
collocated NorthPoint partners will also have convenient access to exclusive
Equinix value added services. NorthPoint will be Equinix's preferred DSL
provider for both Equinix's own uses and for any DSL referrals. In addition,
NorthPoint invested $5 million in Equinix.

iBeam. In October 1999, NorthPoint entered a strategic relationship with
iBeam Broadcasting to provide high-quality streaming content over NorthPoint's
network. Content will be transmitted from iBeam's satellites into the
NorthPoint network. We believe this content distribution relationship will
permit the reliable transmission of content to broadband users by bypassing the
congestion of the Internet.

High Speed Access Corp. In October 1999, NorthPoint entered a strategic
partnership to extend the reach and offerings of High Speed Access. High Speed
Access is a leading provider of high-speed Internet

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access via cable modems to residential and commercial customers. The agreement
allows High Speed Access to expand the broadband options available to its small
and medium-sized business customers by providing increased broadband
applications, e-commerce activities, and high-speed Internet connectivity to
customers not passed by the cable network. High Speed Access has the ability to
extend the enhanced capabilities provided through the NorthPoint relationship
to additional cable operators through its long-term exclusive relationships.

Alternative Data Transport Technologies

We believe that our DSL-enabled networks offer price and performance
characteristics that are attractive to network service providers for many of
their end users when compared with other options:

. Dial-up Analog Modems. Analog modems use the traditional telephone
system, and are the most commonly used data transport technology today.
Because the electronic components of the traditional telephone system
limit data transmission speeds, however, these traditional modems rarely
exceed data throughput of 56 kilobits per second. In addition, modems
generally require that the user or system dial a phone number to connect
with a data service, which creates delays in making connections and may
present security concerns.

. Integrated Services Digital Network (ISDN). Integrated services digital
network is a technology that works with the traditional telephone system
to send voice and data over existing copper wires at speeds up to 144
kilobits per second. Integrated services digital network is equal in
speed or slower than all of our services. Integrated services digital
network is typically priced with usage charges, making an always-on
connection with an integrated services digital network modem
prohibitively expensive.

. T1 Service. T1 service provides data transmission speed of 1.544
megabits per second. T1 pricing has traditionally been sensitive to the
distance between an end user and its service provider, creating
marketing difficulties and pricing anomalies.

. Cable Modems. Cable modem networks have penetrated certain residential
markets, but only about one-third of all homes in the United States and
Canada passed by existing cable infrastructure have cable modem
capacity. In addition, we believe that many of our target business end
users are not passed by existing cable infrastructure. Moreover,
although cable modems offer high speed services, they operate over a
shared cable infrastructure and therefore cannot offer guaranteed
bandwidth or the network security features that we believe a majority of
our targeted end users demand. In addition, cable modems do not offer
symmetric bandwidth, which we believe is important for business
applications.

. Wireless. Few of our target end users are served today by fixed wireless
infrastructure. We believe further rollout will be slowed by the need
for fixed wireless service providers to obtain roof rights and overcome
technological limitations and interference from terrain, obstructions
and weather.

. Fiber. Fiber optic lines provide high speed data transport, but today
reach only a fraction of our target end users. Local fiber optic builds
have generally targeted large corporations based in downtown office
buildings. Moreover, even where fiber passes a building, our DSL-enabled
network may be more cost effective for small- to medium-sized
businesses.

For more information about the highly competitive market in which we
operate, see "Risk Factors--The Market in Which We Operate is Highly
Competitive, and We May Not Be Able to Compete Effectively, Especially Against
Established Industry Competitors with Significantly Greater Financial
Resources."

Government Regulation

Overview. Our telecommunications services are subject to varying degrees of
federal, state and local regulation. The FCC and state utility commissions
regulate telecommunications common carriers. A

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telecommunications common carrier is a company that offers telecommunications
services to the public or to all prospective users on standardized rates and
terms. Our data transport services are common carrier services.

The FCC exercises jurisdiction over telecommunications common carriers, and
their facilities and services, to the extent they are providing interstate or
international communications. The various state regulatory commissions retain
jurisdiction over telecommunications carriers, and their facilities and
services, to the extent they are used to provide communications that originate
and terminate within the same state. The degree of regulation varies from state
to state.

In recent years, the regulation of the telecommunications industry has been
in a state of flux as the United States Congress and various state legislatures
have passed laws seeking to foster greater competition in telecommunications
markets. The FCC and state utility commissions have adopted many new rules to
implement these new laws and encourage competition. These changes, which are
still incomplete, have created new opportunities and challenges for us and our
competitors. The following summary of regulatory developments and legislation
does not purport to describe all present and proposed federal, state and local
regulations and legislation affecting the telecommunications industry. Certain
of these and other existing federal and state regulations are currently the
subject of judicial proceedings, legislative hearings and administrative
proposals which could change, in varying degrees, the manner in which this
industry operates. Neither the outcome of these proceedings nor their impact
upon the telecommunications industry or us can be predicted at this time.

Federal Regulation. Although we currently are not subject to price cap or
rate of return regulation at the federal level and are not currently required
to obtain FCC authorization for the installation, acquisition or operation of
our network facilities, we nevertheless must comply with the requirements of
common carriage under the Communications Act of 1934 (the "Communications
Act"), as amended, to the extent we provide interstate services. Pursuant to
the Communications Act, we are subject to the general requirement that our
charges and regulations for communications services must be "just and
reasonable" and that we may not make any "unjust or unreasonable
discrimination" in our charges or regulations. Certain other specific
regulations applicable to us are discussed below. The FCC also has jurisdiction
to act upon complaints against any common carrier for failure to comply with
its statutory obligations.

Comprehensive amendments to the Communications Act were made by the
Telecommunications Act, which was signed into law on February 8, 1996. The
Telecommunications Act effected plenary changes in regulation at both the
federal and state levels that affect virtually every segment of the
telecommunications industry. The stated purpose of the Telecommunications Act
is to promote competition in all areas of telecommunications. While it may take
years for the industry to feel the full impact of the Telecommunications Act,
it is already clear that the legislation provides us with both new
opportunities and new challenges.

The Telecommunications Act greatly expands the interconnection requirements
on the incumbent local exchange carriers, or ILECs. The Telecommunications Act
requires the ILECs to:

. provide physical collocation, which allows companies such as us and
other interconnectors to install and maintain their own network
termination equipment in ILEC central offices, and virtual collocation
only if requested or if physical collocation is demonstrated to be
technically infeasible;

. unbundle components of their local service networks so that other
providers of local service can compete for a wide range of local
services customers;

. establish "wholesale" rates for their services to promote resale by
competitive local exchange carriers, or CLECs, and other competitors;

. establish number portability, which will allow a customer to retain its
existing phone number if it switches from the ILEC to a competitive
local service provider;

. establish dialing parity, which ensures that customers will not detect a
quality difference in dialing telephone numbers or accessing operators
or emergency services; and

. provide nondiscriminatory access to telephone poles, ducts, conduits and
rights-of-way.

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The FCC is charged with establishing national guidelines to implement
certain portions of the Telecommunications Act. The FCC issued its
Interconnection Order on August 8, 1996. On July 18, 1997, however, the United
States Court of Appeals for the Eighth Circuit issued a decision vacating the
FCC's pricing rules, as well as certain other portions of the FCC's
interconnection rules, on the grounds that the FCC had improperly intruded into
matters reserved for state jurisdiction. On January 25, 1999, the Supreme Court
largely reversed the Eighth Circuit's order, holding that the FCC has general
jurisdiction to implement the local competition provisions of the
Telecommunications Act. In so doing, the Supreme Court stated that the FCC has
authority to set pricing guidelines for unbundled network elements, to prevent
ILECs from disaggregating existing combinations of network elements, and to
establish "pick and choose" rules regarding interconnection agreements (which
would permit a carrier seeking interconnection to "pick and choose" among the
terms of service from other interconnection agreements between the ILECs and
other CLECs). This action reestablishes the validity of many of the FCC rules
vacated by the Eighth Circuit. Although the Supreme Court affirmed the FCC's
authority to develop pricing guidelines, the Supreme Court did not evaluate the
specific pricing methodology adopted by the FCC and has remanded the case to
the Eighth Circuit for further consideration. In its decision, however, the
Supreme Court also vacated the FCC's rule that identifies the unbundled network
elements that ILECs must provide to CLECs. The Supreme Court found that the FCC
had not adequately considered certain statutory criteria for requiring ILECs to
make those network elements available to CLECs and must reexamine the matter.
The FCC completed that reexamination in the fall of 1999 and largely reaffirmed
its prior decision regarding access to unbundled network elements, including
the unbundled copper loops and transport facilities utilized by data carriers
like NorthPoint. The FCC's decision is subject to review by the Courts and
further consideration by the FCC in subsequent proceedings. We cannot predict
the ultimate disposition of those matters. The possible impact of this
decision, including the portion dealing with unbundled network elements, on
existing interconnection agreements between traditional telephone companies and
CLECs or on agreements that may be negotiated in the future also cannot be
determined at this time.

As a result of the pro-competitive provisions of the Telecommunications Act,
we have been able to obtain authorizations to operate as a CLEC in California,
Colorado, Connecticut, District of Columbia, Florida, Georgia, Illinois,
Indiana, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan,
Minnesota, Missouri, Montana, Nevada, New Hampshire, New Jersey, New York,
North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina,
Texas, Utah, Virginia, Washington, and Wisconsin. We have signed
interconnection agreements in all these states except Michigan, New Hampshire,
Rhode Island, South Carolina, Connecticut, and Louisiana, where we are
procuring unbundled network elements out of tariff.

The FCC has established different levels of regulation for dominant and non-
dominant carriers. Of domestic common carrier service providers, only GTE, the
regional Bell operating companies and other traditional telephone companies are
classified as dominant carriers and all other providers of domestic common
carrier services, including us, are classified as non-dominant carriers. As a
non-dominant carrier, we are subject to less FCC regulation than dominant
carriers.

The Telecommunications Act also directs the FCC, in cooperation with state
regulators, to establish a universal service fund that will provide subsidies
to carriers that provide service to under-served individuals and in high cost
areas. A portion of carriers' contributions to the universal service fund also
will be used to provide telecommunications-related facilities for schools,
libraries and certain rural health care providers. The FCC released its initial
order in June 1997. This order will require us to contribute to the universal
service fund, but may also allow us to receive payments from the fund if we are
deemed eligible. We also may provide service to under-served customers in lieu
of making universal service fund payments. The FCC's implementation of
universal service requirements remains subject to judicial and additional FCC
review. Additional changes to the universal service regime, which would
increase our costs, could have adverse consequences for us.

Various regional Bell operating companies have filed petitions with the FCC
requesting regulatory relief in connection with the provision of data services,
including DSL services. In response to these petitions, the FCC 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 to,

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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 traditional telephone companies to provide
competitive DSL companies access to the high-frequency portion of existing
voice service lines for the provision of high speed DSL services.

By allowing DSL competitive companies to provide some DSL services on
shared-lines, the FCC's line sharing decision is intended to increase the
addressable subscriber market and to reduce costs by sharing loop efficiencies.
The decision is subject to review by the Courts and the FCC and further subject
to implementation on a state-by-state basis. The benefits of the 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.

State Regulation. To the extent that we provide telecommunications services
which originate and terminate within the same state, we are subject to the
jurisdiction of that state's public service commission. As noted above, we have
obtained authorizations to operate as a CLEC in 53 of our 60 target markets. We
are not subject to price cap or rate of return regulation in any state in which
we are currently certificated to provide local exchange service.

The Telecommunications Act preempts state statutes and regulations that
prohibit or have the effect of prohibiting the provision of competitive local
services. As a result of this sweeping legislation, we will be free to provide
the full range of intrastate local and long distance services in all states in
which we currently operate, and in any states into which we may wish to expand.
While this action greatly increases our addressable customer base, it also
increases the amount of competition to which we may be subject.

Although the Telecommunications Act's prohibition of state barriers to
competitive entry took effect on February 8, 1996, various legal and policy
matters still must be resolved before the Telecommunications Act's policies
promoting local competition are fully implemented.

To the extent we provide intrastate services, we may be required to file
tariffs with the state public service commission setting forth the terms,
conditions and prices for services classified as intrastate. Like the FCC, most
states also consider complaints relating to a carrier's intrastate services or
rates.

As we expand our operations into other states, we may become subject to the
jurisdiction of their respective public service commissions for certain
services offered by us.

Local Government Authorizations. We may be required to obtain from municipal
authorities street opening and construction permits to install our facilities
in certain cities. In some of the areas where we provide service, we are
subject to municipal franchise requirements requiring us to pay license or
franchise fees either on a percentage of gross revenue, flat fee or other
basis. The Telecommunications Act requires municipalities to charge
nondiscriminatory fees to all telecommunications providers, but it is uncertain
how quickly this requirement will be implemented by particular municipalities
in which we operate or plan to operate or whether it will be implemented
without a legal challenge.

Customers

We market our network and data transport services to Internet service
providers, broadband data service providers and long-distance and local
telephone companies. During the year ended December 31, 1999, our two largest
customers, Flashcom, Inc. and Concentric Network Corporation, accounted for 32%
of our revenues. For more information, see "Risk Factors--A Limited Number of
Customers Account for a High Percentage of Our Revenues and the loss of a
Significant Customer Could Harm Our Business."

Employees

As of December 31, 1999, NorthPoint had 1,090 employees (including 142
temporary personnel and consultants), employed in engineering, sales,
marketing, customer support and related activities, and general

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and administrative functions. None of NorthPoint's employees are represented by
a labor union, and we consider relations with our employees to be good. See
"Risk Factors--Our Success Depends on Our Retention of Executive Officers and
Other Key Personnel and Our Ability to Hire Additional Key Personnel."

Facilities

We are headquartered in facilities consisting of approximately 111,000
square feet in San Francisco which we occupy under a five-year lease. In
addition, we occupy three facilities in Emeryville, California, consisting of a
37,500 square foot facility under a seven-year lease, an 81,600 square foot
facility under a seven-year lease, and a 10,000 square foot facility under a
ten-year lease. We have short-term leases for 34 of our regional offices. We
consider this space adequate for our current operations. We also lease space in
a number of traditional telephone company central offices and private
facilities in which we locate our equipment.

Legal Proceedings

We are not a party to any legal proceedings other than various claims and
lawsuits arising in the ordinary course of our business which, in the opinion
of management, are not individually or in the aggregate material to our
business.

We are, however, subject to state commission, FCC and court decisions as
they relate to the interpretation and implementation of the Telecommunications
Act, the interpretation of CLEC interconnection agreements in general and our
interconnection agreements in particular. In some cases, we may be deemed to be
bound by the results of ongoing proceedings of these bodies or the legal
outcomes of other contested interconnection agreements that are similar to our
agreements. The results of any of these proceedings could have a material
adverse effect on our business, prospects, financial condition and results of
operations.

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MANAGEMENT

Executive Officers and Directors

Our executive officers and directors, and their ages as of March 31, 2000,
are as follows:

<TABLE>
<CAPTION>
Name Age Positions
---- --- ---------
<C> <C> <S>
Michael W. Malaga....... 35 Chairman of the Board of Directors

Elizabeth A. Fetter..... 41 Chief Executive Officer, President and Director

Herman W. Bluestein..... 53 Executive Vice President and Chief Development
Officer

Michael P. Glinsky...... 55 Executive Vice President and Chief Financial
Officer

Michael G. Parks........ 47 Chief Information Officer

Steven J. Gorosh........ 42 Executive Vice President, General Counsel and
Secretary

Nancy J. Hemmenway...... 46 Executive Vice President, Human Resources and
Administration

Robert K. Dahl.......... 59 Director

Michael J. Fitzpatrick.. 51 Director

Reed E. Hundt........... 52 Director

Andrew S. Rachleff...... 41 Director

Dino J. Vendetti........ 38 Director

J. Peter Wagner......... 34 Director

Frank D. Yeary.......... 36 Director
</TABLE>

Michael W. Malaga is a founder and has been Chairman of NorthPoint since
June 1997. Mr. Malaga was also the Chief Executive Officer of NorthPoint from
June 1997 to March 2000 and the President of NorthPoint from June 1997 to March
1999. From June 1995 to June 1997, Mr. Malaga was employed at
MFS Communications Company, Inc., most recently as the Director of Strategic
Development, where he led the strategic and development efforts for xDSL and
small-business Internet access. While at MFS, Mr. Malaga played a principal
role in integrating its purchase of UUNET Technologies, Inc., a national ISP.
Prior to joining MFS, Mr. Malaga worked at GenRad, Inc.'s Structural Test
Products Division from 1988 to June 1995.

Elizabeth A. Fetter has been the Chief Executive Officer of NorthPoint since
March 2000, a member of the board of directors since January 2000 and the
President of NorthPoint since March 1999. Ms. Fetter was also the Chief
Operating Officer of NorthPoint from March 1999 to March 2000. From January
1998 until joining NorthPoint, Ms. Fetter was Vice President and General
Manager of the Consumer Services Group at U S WEST where she was responsible
for a $4.7 billion dollar business serving over 11 million customers with
integrated wireline, wireless and data services. In 1997, Ms. Fetter served as
Vice President and General Manager of Operator and Directory Services for SBC
Communications Inc. From March 1991 to May 1997, Ms. Fetter held various
executive positions in strategy, finance, sales, marketing and general
management at Pacific Bell, most recently as President of the Industry Markets
Group, where she was responsible for the Company's wholesale, interconnection
and resale businesses. Ms. Fetter worked in international management consulting
and at Chevron Corporation prior to March 1991.

Herman W. Bluestein has been the Executive Vice President of NorthPoint
since April 2000 and the Chief Development Officer of NorthPoint since
September 1998. From October 1997 until joining NorthPoint, Mr. Bluestein was
Chief Executive Officer of Pacific Communications Services. From 1995 through
1997, Mr. Bluestein was Vice President of Wireless Strategy and Development for
MCI Communications Corp. (now known as MCI WorldCom, Inc.) where he developed
and executed MCI's wireless strategy, negotiated service agreements with
cellular and PCS providers and managed strategic relationships with service
providers. From 1994 to 1995, Mr. Bluestein was Vice President, Business
Development and Alliance General Manager for

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MCI's alliance with British Telecommunications, plc. From 1989 to 1994, Mr.
Bluestein was Vice President of Strategic Business Development and Geographic
Expansion for Centex Telemanagement, Inc., a San Francisco-based
telecommunications company that was acquired by MFS in 1994.

Michael P. Glinsky has been the Chief Financial Officer of NorthPoint since
April 2000. From June 1998 to April 2000, Mr. Glinsky was on sabbatical. From
April 1996 until June 1998, Mr. Glinsky was Executive Vice President and Chief
Financial Officer of U S WEST INC. From 1967 to April 1996, Mr. Glinsky held
various positions with Coopers & Lybrand, most recently as a Managing Partner.

Michael G. Parks has been the Chief Information Officer of NorthPoint since
September 1999. From October 1998 to August 1999, Mr. Parks served as Executive
Vice President of Wells Fargo Bank where he headed the bank-wide integration
efforts for the merger of Norwest and Wells Fargo. From September 1997 to
September 1998, Mr. Parks served as Executive Vice President of Wells Fargo's
Retail Credit Services unit where he was responsible for providing systems and
operations support for Wells Fargo's Consumer Banking Group. From June 1994 to
September 1997, Mr. Parks was a Senior Vice President with SABRE Decision
Technologies, a unit of AMR Corporation. Mr. Parks previously served in a
number of senior management positions with American Airlines, most recently as
Vice President of Information Systems.

Steven J. Gorosh is a founder and has been the Executive Vice President of
NorthPoint since March 2000 and the General Counsel and Secretary of NorthPoint
since June 1997. Mr. Gorosh was also the Vice President of NorthPoint from June
1997 to March 2000. From June 1994 to June 1997, Mr. Gorosh was the Senior
Counsel for MFS Intelenet, where he helped set regulatory strategy and obtain
necessary local service regulatory authority for the nation's largest
alternative local service provider. From June 1991 to June 1994, Mr. Gorosh
served as the Senior Counsel at Centex prior to its acquisition by MFS. From
April 1988 until joining Centex, Mr. Gorosh was an attorney in the FCC Common
Carrier and General Counsel Bureaus.

Nancy J. Hemmenway has been the Executive Vice President of Human Resources
and Administration since March 2000. Ms. Hemmenway was also the Vice President
of Human Resources and Administration of NorthPoint from June 1999 to March
2000. From April 1995 to June 1999, Ms. Hemmenway was the Vice President of
Human Resources of PrimeCo Personal Communications, a partnership between
AirTouch Communications and Bell Atlantic. Prior to joining PrimeCo, from March
1991 to March 1995, Ms. Hemmenway was Director of Human Resources Planning for
Bell Atlantic. Previous to that, she held management positions with Bell
Atlantic in external affairs, regulatory, marketing and engineering from
October 1983 to February 1991.

Robert K. Dahl has served as a member of the board of directors since March
1998. Mr. Dahl has been a General Partner at Riviera Ventures, an Alameda-based
private investment and management firm, since February 1998, where he
specializes in investing in companies in the communications sector. From
December 1993 to July 1997, Mr. Dahl served as the Executive Vice President and
Chief Financial Officer for Ascend Communications, Inc. and from July 1997 to
January 1998, Mr. Dahl served as Ascend's Executive Vice President of Corporate
Planning. Mr. Dahl also serves as a director of Ascend, Momentum Business
Applications, Inc., the Bank of Alameda and several privately held companies.

Michael J. Fitzpatrick has served as a member of the board of directors
since May 1999. Mr. Fitzpatrick has been President and Chief Executive Officer
and a director of E-Tek Dynamics, Inc. since October 1997 and Chairman of the
Board of E-Tek since April 1999. From July 1994 to October 1997, Mr.
Fitzpatrick served as President and Chief Executive Officer of Pacific Telesis
Enterprises, a telecommunication service provider. While at Pacific Telesis,
Mr. Fitzpatrick also served as Executive Vice President of Marketing and Sales
from January 1994 to July 1994 and Executive Vice President of Statewide
Markets with Pacific Bell, an affiliate of Pacific Telesis, from September 1993
to January 1994. From October 1991 to August 1993, Mr. Fitzpatrick was
President and Chief Executive Officer of Network Systems Corporation, an
internetworking company. Mr. Fitzpatrick also serves as a director of Adva AG
Optical Networks.

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Reed E. Hundt has served as a member of the board of directors since May
1998. Mr. Hundt served as Chairman of the FCC from 1993 to 1997. He currently
serves as senior advisor at McKinsey & Company, Inc., an international
consulting firm. Prior to joining the FCC, Mr. Hundt was a partner at Latham &
Watkins, an international law firm. Mr. Hundt also serves on the board of
directors of Allegiance Telecom, Inc., Phone.com, Inc. and Novell, Inc.

Andrew S. Rachleff has served as a member of the board of directors since
August 1997. Since 1995, Mr. Rachleff has been a general partner at Benchmark
Capital, a Menlo Park-based venture capital firm, where he specializes in
investing in companies in the communications industry. Prior to co-founding
Benchmark Capital, Mr. Rachleff spent ten years as a general partner with
Merrill, Pickard, Anderson & Eyre, a Menlo Park-based venture capital firm. Mr.
Rachleff serves on the board of directors of CacheFlow Inc. as well as several
privately held companies.

Dino J. Vendetti has served as a member of the board of directors since
February 1999. Mr. Vendetti has managed investments in the telecommunications,
cable and data networking industries for Vulcan Ventures, Inc. since May 1998.
From August 1997 until joining Vulcan Ventures, Mr. Vendetti was Vice President
and Research Analyst at Dain Rauscher covering the telecommunications industry.
From July 1996 to April 1997, Mr. Vendetti was Vice President of Product
Management at Metawave Communications Corporation. From October 1994 to July
1996, Mr. Vendetti served as Director of Business Development and Product
Management for Qualcomm, Inc., where he was responsible for the global
infrastructure product line. Mr. Vendetti serves on the board of directors of
Allegiance Telecom, Inc. as well as several privately held companies.

J. Peter Wagner has served as a member of the board of directors since
August 1997. Mr. Wagner has been a General Partner at Accel Partners, a San
Francisco-based private equity investing firm, since July 1996, where he
specializes in investing in companies in the communications sector, including
networking, telecommunications and wireless technology. From September 1992 to
July 1996, Mr. Wagner was a Product Line Manager for Silicon Graphics, Inc. Mr.
Wagner also serves on the boards of directors of several privately held
companies.

Frank D. Yeary has served as a member of the board of directors since
February 1999. Mr. Yeary has been self-employed since March 2000. From July
1998 to March 2000, Mr. Yeary was a Managing Director of The Carlyle Group,
where he was in charge of Carlyle's domestic and global telecommunications and
media investments. From December 1994 to June 1998, Mr. Yeary was Managing
Director, Global Head of Telecommunications & Media and was a member of the
Investment Banking Management Committee at Salomon Smith Barney. Mr. Yeary
serves on the boards of directors of several privately held companies.

Board of Directors

Our certificate of incorporation divides our directors into three classes.
Three Class I Directors hold office initially for a term expiring at the annual
meeting of stockholders in 2000. Two Class II Directors hold office initially
for a term expiring at the annual meeting of stockholders in 2001. Two Class
III Directors hold office initially for a term expiring at the annual meeting
of stockholders in 2002. The members of each class hold office until their
successors are duly elected and qualified. At each annual meeting of NorthPoint
stockholders, the successors to the class of directors whose term expires at
the meeting will be elected to hold office for a term expiring at the annual
meeting of stockholders held in the third year following the year of their
election.

Committees of the Board of Directors

In March 1999, the board of directors established an audit committee and a
compensation committee. The audit committee consists of Messrs. Dahl, Rachleff
and Yeary, all of whom are outside directors. The audit committee recommends
engagement of NorthPoint's independent auditors, approves the services
performed by such auditors and reviews and evaluates NorthPoint's accounting
policies and its systems of internal accounting controls. The compensation
committee consists of Messrs. Hundt, Wagner and Vendetti, all of whom are

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outside directors of NorthPoint. The compensation committee makes
recommendations to the board of directors in connection with matters of
compensation, including determining the compensation of NorthPoint's executive
officers.

Compensation Committee Interlocks and Insider Participation

No interlocking relationship exists between the board of directors or the
compensation committee and the board of directors or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past. Messrs. Hundt, Wagner and Vendetti are affiliated with Charles Ross
Partners, Accel Partners and Vulcan Ventures, respectively, which are holders
of our preferred stock. See "Certain Transactions".

Limitation on Liability and Indemnification Matters

Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Our bylaws provide that we shall
indemnify each of our directors and officers against expenses (including
attorneys' fees), judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with any proceeding, arising by reason of the
fact that such person is or was a director or officer of NorthPoint or serving
as a director or officer of another corporation, partnership, joint venture,
trust or other enterprise at our request. We have also entered into agreements
to indemnify directors and our executive officers.

Executive Compensation

The following table shows the compensation received by our Chief Executive
Officer and our top four other most highly compensated executive officers for
the year ended December 31, 1999 (the "Named Executive Officers"), and the
compensation received by each such individual for the years ended December 31,
1999 and 1998. We were formed in May 1997 and therefore did not compensate any
of the Named Executive Officers for a full fiscal year in 1997. The column
marked "All Other Compensation" consists of relocation expenses for which we
reimbursed Ms. Fetter and Mr. Bluestein.

<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
---------------------- ---------------------
Securities Underlying All Other
Year Salary Bonus Options Compensation
---- -------- -------- --------------------- ------------
<S> <C> <C> <C> <C> <C>
Michael W. Malaga(1).... 1999 $210,000 $168,000 -- --
Chairman of the Board 1998 $140,000 $ 14,215 -- --
of Directors

Elizabeth A. Fetter(2).. 1999 $198,878 $250,000 2,025,000 $ 57,066
CEO and President

Herman W. Bluestein..... 1999 $205,833 $ 82,333 -- --
Executive Vice 1998 $ 60,769 $ 20,000 787,500 $105,491
President and
Chief Development
Officer

Henry P. Huff(3)........ 1999 $195,000 $ 77,999 -- --
Chief Financial Officer 1998 $101,077 -- 731,250 --

Ann W. Zeichner......... 1999 $148,401 $170,191 -- --
Vice President, Sales 1998 $121,846 -- -- --
</TABLE>
- --------
(1) Mr. Malaga served as the Chief Executive Officer of NorthPoint from June
1997 to March 2000. Mr. Malaga resigned as Chief Executive Officer in March
2000.

(2) Ms. Fetter joined the company in March 1999 as President and Chief
Operating Officer and was elected Chief Executive Officer in March 2000.
Ms. Fetter resigned as Chief Operating Officer in March 2000.

(3) Mr. Huff resigned as Chief Financial Officer in April 2000.

70
<PAGE>

The following tables set forth information for the Named Executive Officers
with respect to grants of options to purchase common stock made in the year
ended December 31, 1999 and the value of all options held by such executive
officers on December 31, 1999. In the column marked "Potential Realizable Value
at Assumed Annual Rates of Stock Price Appreciation for Option Term," potential
gains are net of exercise price, but before taxes associated with the exercise.
These amounts represent certain assumed rates of appreciation only, based on
the SEC rules. Actual gains, if any, on stock option exercises are dependent on
the future performance of the common stock, overall market conditions and the
option-holders' continued employment through the vesting period. The amounts
reflected in this table may not necessarily be achieved.

Option Grants During Year Ended December 31, 1999

<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------------------------
Potential Realizable
Value at Assumed Annual
Number of % of Total Rates of Stock Price
Securities Options Exercise Appreciation for Option
Underlying Granted to or Base Term(2)
Options Employees Price Expiration ------------------------
Name Granted during Year(1) ($/Sh) Date 5% ($) 10% ($)
- ---- ---------- -------------- -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Michael W. Malaga(3).... -- -- -- -- -- --
Elizabeth A. Fetter(4).. 2,025,000(5) 21.9% $6.66 3/22/09 $65,711,250 $112,367,250
Henry P. Huff(6)........ -- -- -- -- -- --
Herman W. Bluestein..... -- -- -- -- -- --
Ann W. Zeichner......... -- -- -- -- -- --
</TABLE>
- --------
(1) Based on an aggregate total of 9,242,386 options granted to employees in
1999, under our 1997 and 1999 Stock Plans.

(2) Potential realizable values are reported net of the option exercise price,
but before taxes associated with the exercise, if any. These amounts
represent certain assumed rates of appreciation only, in accordance with
regulations of the Securities and Exchange Commission. Actual gains, if
any, on stock option exercises and common stock holdings are dependent on
the future performance of the common stock and overall market conditions,
as well as executives continued employment through the vesting period.
There is no assurance that the amounts reflected would be realized.

(3) Mr. Malaga served as the Chief Executive Officer of NorthPoint from June
1997 to March 2000. Mr. Malaga resigned as Chief Executive Officer in March
2000.

(4) Ms. Fetter joined the company in March 1999 as President and Chief
Operating Officer and was elected Chief Executive Officer in March 2000.
Ms. Fetter resigned as Chief Operating Officer in March 2000.

(5) On March 22, 1999, we granted to Elizabeth A. Fetter an option to purchase
2,025,000 shares of common stock at an exercise price of $6.66 per share,
the fair market value of one share of common stock on the date of grant, as
determined by our board of directors. The option vests as follows: (1)
281,250 shares subject to the option are exercisable immediately, (2) 1/4
of the remaining unvested shares subject to the option vest on March 15,
2000, and (3) 1/36 of the remaining unvested shares (the total number of
shares subject to the option less the number of shares that vested pursuant
to clauses (1) and (2) above) vest on each monthly anniversary of the
vesting commencement date after March 15, 2000, based upon Ms. Fetter's
continued employment by the company.

(6) Mr. Huff resigned as Chief Financial Officer in April 2000.

71
<PAGE>

The following table provides information concerning exercises of options to
purchase our common stock in the fiscal year ended December 31, 1999, and
unexercised options held as of December 31, 1999, by the Named Executive
Officers. The fair value of the unexercised in-the-money options was $24.00 per
share at December 31, 1999, which was the closing price per share of our stock
on the Nasdaq National Market on that date. The option exercise prices were set
by our board of directors and generally reflect its best estimate of the fair
value of our stock on the date of each grant based on recent sales of our
equity securities, developments in our business and developments in the
financial markets.

Aggregated Option Exercises in the Year Ended
December 31, 1999 and Year-End Option Values

<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Shares Unexercised Options In-the-Money Options at
Acquired on Value at December 31, 1999 December 31, 1999(1)
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ----------- ---------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Michael W. Malaga(2).... -- -- -- --

Elizabeth A. Fetter(3).. 166,250 $5,149,230 180,000/ 1,743,750 $4,320,000/$41,850,000

Herman W. Bluestein..... 240,000 $5,671,656 41,977/ 535,521 $1,007,448/$12,852,504

Henry P. Huff(4)........ 117,400 $3,526,754 670,850/ -- $16,100,400/ --

Ann W. Zeichner......... 347,230 $6,287,611 512,265/ 615,235 $12,294,360/$14,765,640
</TABLE>
- --------
(1) The fair market value of our common stock (as reported on the Nasdaq
National Market) at the close of business on December 31, 1999 was $24.00.

(2) Mr. Malaga served as the Chief Executive Officer of NorthPoint from June
1997 to March 2000. Mr. Malaga resigned as Chief Executive Officer in March
2000.

(3) Ms. Fetter joined the company in March 1999 as President and Chief
Operating Officer and was elected Chief Executive Officer in March 2000.
Ms. Fetter resigned as Chief Operating Officer in March 2000.

(4) Mr. Huff resigned as Chief Financial Officer in April 2000.

1997 Stock Option Plan

Our 1997 Stock Option Plan was adopted by the board of directors and
approved by the stockholders in September 1997. A total of 16,147,647 shares of
common stock has been reserved for issuance under the plan. As of December 31,
2000, options to purchase 11,512,591 shares of common stock were outstanding
under the plan.

The plan provides for grants to employees of NorthPoint (including officers
and employee directors) of "incentive stock options" ("ISOs") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and for grants of nonstatutory stock options ("NSOs") to employees
(including officers and employee directors) and consultants (including non-
employee directors) of NorthPoint.

The plan is administered by the board of directors or a committee of the
board of directors. The plan is currently being administered by the
compensation committee of the board of directors. The administrator may
determine the terms of the options granted, including the exercise price, the
number of shares subject to each option and the exercisability of the
option.The administrator also has the full power to select the individuals to
whom options will be granted and to make any combination of grants to any
participants.

Options generally have a term of ten years. One-fourth of the shares subject
to the option vest on the one-year anniversary of the vesting commencement date
and 1/48th of the shares subject to the option vest on each monthly anniversary
of the vesting commencement date thereafter.

The option exercise price may not be less than 100% of the fair market value
of the common stock on the date of grant; provided, however, that NSOs may be
granted at exercise prices of not less than 85% of the fair

72
<PAGE>

market value on the date the option is granted. In the case of an ISO or NSO
granted to a person who at the time of the grant owns stock representing more
than 10% of the total combined voting power of all classes of stock of
NorthPoint, the option exercise price for each share covered by such option may
not be less than 110% of the fair market value of a share of common stock on
the date of grant of such option.

The term of an option is determined by the specific option agreement;
provided, however, the term may not be longer than ten years. Furthermore, the
maximum term for an option granted to an optionee is five years, if at the time
of the grant the optionee owns more than 10% of the total combined voting power
of all classes of stock of NorthPoint. No option may be exercised by any person
after its term expires.

In the event of a sale of all or substantially all of the assets of
NorthPoint, or the merger of NorthPoint with or into another corporation, each
option must be assumed or an equivalent option substituted by the successor
corporation. If the successor corporation does not agree to assume the option
or to substitute an equivalent option, the option will terminate upon the
consummation of the merger or sale of assets; provided, however, the
administrator has the discretion to decide to accelerate the vesting of the
option to make it exercisable as to some or all of the shares subject to the
option. In March 1999, NorthPoint Communications Group assumed all of the
options then outstanding under the 1997 Stock Option Plan.

1999 Stock Plan

NorthPoint's 1999 Stock Plan was adopted by the board of directors in March
1999 and approved by our stockholders in April 1999. A total of 16,282,765
shares of common stock has been reserved for issuance under the 1999 Stock
Plan. As of December 31, 1999, 8,490,214 options had been issued under the 1999
Stock Plan.

The 1999 Stock Plan provides for grants of ISOs to employees, consultants
and members of NorthPoint's board of directors, and for grants of NSOs and
stock purchase rights to employees (including officers and employee directors)
and consultants (including non-employee directors) of NorthPoint.

The 1999 Stock Plan is administered by the compensation committee or another
committee of the board of directors. The 1999 Stock Plan is currently being
administered by the compensation committee. The administrator of the 1999 Stock
Plan may determine the terms of the options and stock purchase rights granted,
including the exercise price, the number of shares subject to each option
and/or stock purchase right and the exercisability of the option and/or stock
purchase right. The administrator of the 1999 Stock Plan also has the full
power to select the individuals to whom options and/or stock purchase rights
will be granted, to make any combination of grants to any participants and to
determine whether stock acquired pursuant to a stock purchase right is to be
subject to repurchase by NorthPoint.

Options generally have a term of ten years. Options granted to employees
vest at a rate of no less than 20% per year over five years from the date the
option is granted. Under the 1999 Stock Plan, each independent director will
receive 40,000 options at the time of the successful completion of this
offering. These options vest over three years at the rate of 1/36th on each
monthly anniversary of the vesting commencement date. At each subsequent
meeting at which they are re-elected, each outside director will receive 13,000
options which vest over three years, starting at the beginning of the two year
anniversary of the date of grant at the rate of 1/12th on each monthly
anniversary of the vesting commencement date. Stock purchase rights may be
subject to repurchase options that lapse at a rate of no less than 20% per year
over five years from the date of purchase.

Option exercise prices may not be less than 100% of the fair market value of
the common stock on the date of the grant; however, NSOs may be granted at
exercise prices less than the fair market value on the date the option is
granted. Any grant of an NSO at an exercise price of less than 85% of the fair
market value on the date the option is granted, however, requires the approval
of both the compensation committee and the board of directors. In the case of
an ISO or NSO granted to a person who at the time of the grant owns stock
representing more than 10% of the total combined voting power of all classes of
stock of NorthPoint, the

73
<PAGE>

option exercise price for each share covered by such option may not be less
than 110% of the fair market value of a share of common stock on the date of
grant of such option.

Option terms are determined by the option agreements; however, no option may
have a term longer than ten years. The maximum term for an option granted to an
optionee is five years, if at the time of the grant the optionee owns more than
10% of the total combined voting power of all classes of NorthPoint stock. No
option may be exercised by any person after its term expires.

In the event of a sale of all or substantially all of the assets of
NorthPoint, or the merger of NorthPoint with or into another corporation, the
administrator may provide for the repurchase, replacement or termination of
options or stock purchase rights. The administrator also has the discretion to
accelerate the vesting of options or stock purchase rights to make them
exercisable as to some or all of the underlying shares.

1999 Employee Stock Purchase Plan

NorthPoint's 1999 Employee Stock Purchase Plan was adopted by the board of
directors in March 1999 and approved by the stockholders in April 1999. A total
of 2,250,000 shares of common stock has been reserved for issuance under the
purchase plan. As of December 31, 1999, 79,669 shares have been issued under
the purchase plan.

The purchase plan, which is intended to qualify under Section 423 of the
Code, contains consecutive six-month offering periods. The offering periods
generally start on January 1 and July 1 of each year.

Employees are eligible to participate if they are customarily employed by us
or any participating subsidiary for at least 20 hours per week and more than
five months in any calendar year. However, no employee may be granted a right
to purchase stock under the purchase plan (1) to the extent that, immediately
after the grant of the right to purchase stock, the employee would own (or be
treated as owning) stock possessing 5% or more of the total combined voting
power or value of all classes of the capital stock of NorthPoint or (2) to the
extent that his or her rights to purchase stock under all of our employee stock
purchase plans accrues at a rate which exceeds $25,000 worth of stock for each
calendar year. The purchase plan permits participants to purchase common stock
through payroll deductions of up to 10% of the participant's base compensation.
Base compensation is defined as the participant's gross base compensation,
excluding overtime payments, sales commissions, incentive compensation,
bonuses, expense reimbursements, fringe benefits and other special payments.
The maximum number of shares a participant may purchase with respect to a
single offering period is 4,500 shares.

Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each offering period. The price of stock
purchased under the purchase plan is 85% of the lesser of the fair market value
of the common stock (1) at the beginning of the offering period or (2) at the
end of the offering period. Participants may end their participation at any
time other than the final ten days of an offering period, and they will be paid
their payroll deductions to date. Participation ends automatically upon
termination of employment with NorthPoint.

Rights to purchase stock granted under the purchase plan are not
transferable by a participant other than by will, the laws of descent and
distribution, or as otherwise provided under the purchase plan. The purchase
plan provides that, in the event of a merger of NorthPoint with or into another
corporation or a sale of substantially all of NorthPoint's assets, each
outstanding right to purchase stock may be assumed or substituted for by the
successor corporation.

The board of directors has the authority to amend or terminate the purchase
plan. However, no such action by the board of directors may adversely affect
any outstanding rights to purchase stock under the purchase plan, except that
the board of directors may terminate an offering period on any exercise date if
the board of directors determines that the termination of the purchase plan is
in the best interests of NorthPoint and its

74
<PAGE>

stockholders. Notwithstanding anything to the contrary, the board of directors
may in its sole discretion amend the purchase plan to the extent necessary and
desirable to avoid unfavorable financial accounting consequences by altering
the purchase price for any offering period, shortening any offering period or
allocating remaining shares among the participants.

Employment Agreements and Change of Control Arrangements

Employment Agreements

On March 7, 2000, we entered into employment agreements with Elizabeth A.
Fetter, Herman W. Bluestein, Steven J. Gorosh, Nancy J. Hemmenway and Michael
G. Parks. Ms. Fetter is our Chief Executive Officer and President. Mr.
Bluestein is our Executive Vice President and Chief Development Officer.
Mr. Gorosh is our Executive Vice President, General Counsel and Secretary. Ms.
Hemmenway is our Executive Vice President, Human Resources and Administration.
Mr. Parks is our Chief Information Officer. On April 3, 2000, we entered into
an employment agreement with Michael P. Glinsky, our Executive Vice President
and Chief Financial Officer.

Pursuant to the agreements, each employee is required to devote
substantially all of his or her time and attention to our business and affairs.
The employment agreements provide for annualized base salaries in 2000 as
follows: Ms. Fetter, $400,000; Mr. Bluestein, $220,000; Mr. Gorosh, $225,000;
Ms. Hemmenway, $165,000; Mr. Parks, $200,000; and Mr. Glinsky, $250,000. In
addition, each executive is entitled to annual bonus compensation to be
determined by the compensation committee of the board of directors. The award
of any bonus compensation, however, is dependent on the achievement of
objectives established by the compensation committee. The employment agreements
provide that the executives are employed "at-will" and each of the agreements
may be terminated by us at any time or by the executives upon 30 days' prior
written notice.

The employment agreements also provide these executive officers with certain
severance benefits in the event their employment with us is involuntarily
terminated by us without cause following a change of control, or the executive
resigns in connection with a material change in the executive's employment
circumstances following a change of control. With respect to the agreements
with Ms. Fetter, Mr. Bluestein, Ms. Hemmenway and Mr. Parks, these severance
benefits include accelerated vesting of all of the executive's outstanding
stock options and 12 months of salary continuation payments, health care
coverage and life insurance. With respect to the agreement with Mr. Gorosh,
these severance benefits include accelerated lapsing of the restrictions
contained in the restricted stock purchase agreement governing the shares of
common stock owned by Mr. Gorosh and 12 months of salary continuation payments,
health care coverage and life insurance. With respect to the agreement with Mr.
Glinsky, these severance benefits include accelerated vesting of all of
Mr. Glinsky's outstanding stock options and six months of salary continuation
payments, health care coverage and life insurance. The foregoing severance
provisions do not apply if the executive is offered a comparable position with
the new corporate entity, whether or not executive accepts such position.

For purposes of the executive employment agreements, the term "change in
employment circumstances" means a material reduction by us in the executive's
compensation, a failure to provide the executive with benefits, a material
reduction in the executive's job responsibilities or the nature or scope of the
executive's functions, executive's relocation by us to a facility or location
more than 35 miles from executive's principal place of employment at least two
days per week, or the breach by us of our obligations under any agreement with
the executive or our repudiation of our obligations under the executive
employment agreement.

For purposes of the executive employment agreements, termination for "cause"
generally means the executive's termination by us as a result of the
executive's conviction of a felony, the executive's fraud with respect to us,
intentional misconduct by the executive intended to have a materially adverse
effect on our business, the executive's repeated failure to satisfactorily
perform his or her duties, an intentional breach by the executive of any of his
or her fiduciary obligations or a material breach of any agreement with us or
the executive's death or permanent disability.

75
<PAGE>

Stock Option Agreements

All options granted to our executive officers become subject to accelerated
vesting if a change of control occurs. In the event of a change of control, the
options will vest on an accelerated basis as follows: (1) that number of shares
of our common stock subject to the options that would have vested six months
after the date of the change of control will vest immediately upon the
occurrence of a change of control, (2) no additional shares of common stock
will vest for a period of six months after the change of control and (3) shares
shall again vest in accordance with the vesting schedule set forth in the
option agreement governing the options commencing with the date six months
following the date of the change of control. The provisions of the executive
employment agreements described above supersede the change of control
provisions of the option agreements with those executives with respect to
accelerated vesting if a change of control occurs.

Restricted Stock Awards

In August 1997, Michael Malaga, our Chairman of the Board, and, until March
2000, our Chief Executive Officer, was awarded the right to purchase shares of
restricted stock, all of which he purchased at that time. These shares of
restricted stock are subject to a repurchase option held by us and certain
other restrictions. These restrictions lapse as to 115,088 shares per month. As
of February 29, 2000, Mr. Malaga held approximately 5,524,225 shares of common
stock free of the restrictions in the restricted stock agreement. Mr. Malaga's
restricted stock agreements provide that the restrictions on his restricted
stock will lapse, or vest, on an accelerated basis in the event of a change of
control. Specifically, 688,704 shares of common stock will be released from the
restrictions on the date of the change of control and 115,088 shares will be
released from the restrictions on the fourth day of each month commencing with
the sixth month following the date of the change of control until all shares
are released from the restrictions. In the event Mr. Malaga's employment
relationship with us is terminated within two years following a change of
control, and such termination is an involuntary termination or a termination
without cause, then all shares shall be released from the restrictions. As of
March 4, 2000, 3,836,277 shares owned by Mr. Malaga remained subject to the
restrictions set forth in the restricted stock agreement.

In August 1997, Mr. Gorosh was also awarded the right to purchase shares of
restricted stock, all of which he purchased at that time. These shares of
restricted stock are subject to a repurchase option held by us and certain
other restrictions. These shares of restricted stock are subject to a
repurchase option held by us and certain other restrictions. These restrictions
lapse as to 44,336 shares per month. As of February 29, 2000, Mr. Gorosh held
approximately 2,128,147 shares of common stock free of the restrictions in the
restricted stock agreement. The restrictions on Mr. Gorosh's restricted stock
lapse on an accelerated basis in the event of a change of control pursuant to
his executive employment agreement executed in March 2000. These provisions of
his employment agreement superseded the provisions regarding accelerated
lapsing of the restrictions on his restricted stock contained in his restricted
stock agreement.

For purposes of Mr. Malaga's and Mr. Gorosh's restricted stock agreements,
the term "involuntary termination" means, with respect to both Mr. Malaga and
Mr. Gorosh, his voluntary termination of employment with us following a
material reduction by us in his compensation, a complete elimination of
benefits, a material reduction in job responsibilities inconsistent with his
position with us and responsibilities prior to the change in control, taking
into account the change in ownership of NorthPoint or membership of the board
of directors resulting in the change of control, or his relocation to a
facility or location more than 35 miles from our location prior to the change
of control.

For purposes of Mr. Malaga's and Mr. Gorosh's restricted stock agreements,
termination for "cause" generally means, with respect to both Mr. Malaga and
Mr. Gorosh, termination as a result of a material breach by him of any material
term of his restricted stock agreement, his conviction of a felony, fraud,
repeated unexplained or unjustified absence, willful breach of fiduciary duty
or gross negligence or willful misconduct where such gross negligence or
willful misconduct has resulted or is likely to result in substantial and
material damage to us or our subsidiaries.

76
<PAGE>

For purposes of the executive employment agreements, the executive option
agreements and the restricted stock agreements, a "change of control" includes
the acquisition by any person of beneficial ownership of 50% or more of our
outstanding voting stock, a merger or consolidation or other transaction in
which either we are not the surviving company or our stockholders immediately
prior to the transaction do not continue to own at least 50% of the surviving
corporation immediately after the transaction, or the approval by our
stockholders of a plan of complete liquidation of NorthPoint or an agreement
for the sale or disposition by us of all or substantially all of our assets.

Limitation on Liability and Indemnification Matters

Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Our bylaws provide that we shall
indemnify each of our directors and officers against expenses (including
attorney's fees), judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with any proceeding, arising by reason of the
fact that such person is or was a director or officer of NorthPoint or serving
as a director or officer of another corporation, partnership, joint venture,
trust or other enterprise at our request. We have also entered into agreements
to indemnify directors and our executive officers.

77
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information as of February 29, 2000
with respect to the beneficial ownership of our common stock by:

. each person known by us to own beneficially more than five percent, in
the aggregate, of the outstanding shares of our common stock;

. our directors, our Chief Executive Officer and the top four other highly
compensated executive officers for the year ended December 31, 1999; and

. all executive officers and directors as group.

Share ownership in each case includes shares issuable upon exercise of
outstanding options and warrants that are exercisable within 60 days of
February 29, 2000 as described in the footnotes below. Percentage of ownership
is calculated pursuant to SEC Rule 13d-3(d)(1). Percentage ownership
calculations are based on 125,167,787 shares of common stock outstanding as of
February 29, 2000. The address for all executive officers and directors is c/o
NorthPoint Communications, Inc., 303 Second Street, South Tower, San Francisco,
CA 94107.

<TABLE>
<CAPTION>
Shares
Beneficially Percent
Name Owned Ownership
---- ------------ ---------
<S> <C> <C>
The Carlyle Group(1).................................. 18,902,257 15.1%
1001 Pennsylvania Avenue N.W., Suite 200 S
Washington, D.C. 20004

Vulcan Ventures Incorporated.......................... 10,243,824 8.2%
110 110th Avenue, N.E., Suite 650
Bellevue, WA 98004

Benchmark Capital(2) ................................. 8,999,592 7.0%
2480 Sand Hill Road, Suite 200
Menlo Park, CA 94025

Accel Partners(3) .................................... 7,329,084 5.7%
428 University Avenue
Palo Alto, CA 94301

Michael W. Malaga(4).................................. 7,261,030 5.8%

Elizabeth A. Fetter(5)................................ 588,040 *

Herman W. Bluestein(6)................................ 257,570 *

Henry P. Huff(7)...................................... 647,837 *

Ann W. Zeichner(8).................................... 853,093 *

Robert K. Dahl(9)..................................... 281,918 *

Michael J. Fitzpatrick(10)............................ 12,222 *

Reed E. Hundt(11)..................................... 218,293 *

Andrew S. Rachleff(12)................................ 9,165,635 7.0%

Dino J. Vendetti(13).................................. 44,091 *

J. Peter Wagner(14)................................... 7,341,306 5.7%

Frank D. Yeary(15).................................... 12,222 *

All directors and executive officers as a group (16
persons)(16)(17)..................................... 26,683,257 21.3%
</TABLE>
- --------
* Less than 1%.

78
<PAGE>

(1) Consists of 18,902,257 shares held by various affiliates of The Carlyle
Group.
(2) Consists of 7,896,010 shares held by Benchmark Capital Partners, L.P. and
1,103,582 shares held by Benchmark Founders' Fund, L.P.
(3) Consists of 7,329,084 shares held by various affiliates of Accel
Partners.
(4) Consists of 7,261,030 shares held by the Michael Malaga Revocable Trust.
Mr. Malaga is the Settlor of the Michael Malaga Revocable Trust.
(5) Includes 587,265 shares of common stock issuable upon the exercise of
stock options that are exercisable on or before April 29, 2000.
(6) Includes 76,888 shares of common stock issuable upon the exercise of
stock options that are exercisable on or before April 29, 2000.
(7) Includes 15,934 shares held by The Sierra Venture Management Company 1989
Deferred Savings Plan for the benefit of Mr. Huff. Mr. Huff holds
exercisable options to purchase 613,850 shares of common stock, of which
217,756 are fully vested as of April 29, 2000.
(8) Includes 290,540 shares held by the Zeichner-Larango Family Trust UDT
dated July 28, 1997. Ms. Zeichner is Co-Trustee of the Zeichner-Larango
Family Trust. Also includes 1,580 shares held in trust for Ms. Zeichner's
minor child. Also includes 560,973 shares of common stock issuable upon
the exercise of stock options that are exercisable on or before April 29,
2000.
(9) Includes 130,477 shares held by The Dahl Family Trust dated October 31,
1989, as amended May 3, 1990. Mr. Dahl is the Trustee of The Dahl Family
Trust. Also includes 151,441 shares of common stock issuable upon the
exercise of stock options that are exercisable on or before April 29,
2000.
(10) Consists of 12,222 shares of common stock issuable upon the exercise of
stock options that are exercisable on or before April 29, 2000.
(11) Includes 127,477 shares held by Charles Ross Partners Investment Fund
Number 1. Mr. Hundt, a General Partner of Charles Ross Partners, may be
deemed to have voting and investment power over the shares held by
Charles Ross Partners Investment Fund Number 1. Mr. Hundt disclaims
beneficial interest in such shares, except to the extent of his interest
in Charles Ross Partners. Also includes 90,816 shares of common stock
issuable upon the exercise of stock options that are exercisable on or
before April 29, 2000.
(12) Includes 7,896,010 shares held by Benchmark Capital Partners, L.P. and
1,103,582 shares held by Benchmark Founders' Fund, L.P. Mr. Rachleff, a
Managing Member of Benchmark Capital Management Co., LLC, the general
partner of Benchmark Capital Partners, L.P. and Benchmark Founders' Fund,
L.P., may be deemed to have voting and investment power over the shares
held by Benchmark Capital Partners, L.P. and Benchmark Founders' Fund,
L.P. and its affiliates. Mr. Rachleff disclaims beneficial interest in
such shares, except to the extent of his interest in Benchmark Capital
Management Co., LLC. Also includes 153,821 shares held by the Andrew and
Debra Rachleff Trust UTD May 19, 1992. Mr. Rachleff is Co-Trustee of the
Andrew and Debra Rachleff Trust. Also includes 12,222 shares of common
stock that are issuable upon the exercise of stock options that are
exercisable on or before April 29, 2000.
(13) Mr. Vendetti was appointed by Vulcan Ventures as its representative on
NorthPoint's Board of Directors. Includes 12,222 shares of common stock
that are issuable upon the exercise of stock options that are exercisable
on or before April 29, 2000.
(14) Includes 7,329,084 shares held by various affiliates of Accel Partners.
Mr. Wagner, a General Partner of Accel Partners, may be deemed to have
voting and investment power over the shares held by Accel Partners and
its affiliates. Mr. Wagner disclaims beneficial interest in such shares,
except to the extent of his interest in Accel Partners. Also includes
12,222 shares of common stock that are issuable upon the exercise of
stock options that are exercisable on or before April 29, 2000.
(15) Includes 12,222 shares of common stock that are issuable upon the
exercise of stock options that are exercisable on or before April 29,
2000.
(16) Includes 2,142,343 shares of common stock that are issuable upon the
exercise of stock options that are exercisable on or before April 29,
2000.
(17) Includes 7,896,010 shares held by Benchmark Capital Partners, L.P.;
1,103,582 shares held by Benchmark Founders' Fund, L.P.; and 7,329,084
shares held by affiliates of Accel Partners. Andrew Rachleff, a director
of NorthPoint, is a Managing Member of Benchmark Capital Management Co.,
LLC, the general partner of Benchmark Capital Partners, L.P. and
Benchmark Founders' Fund, L.P. Peter Wagner, a director of NorthPoint, is
a General Partner of Accel Partners.

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CERTAIN TRANSACTIONS

Reorganization

In March 1999, we completed a reorganization in which NorthPoint
Communications, Inc. became a wholly owned subsidiary of a newly created
holding company, NorthPoint Communications Group, Inc. As a result of the
reorganization, the stockholders of NorthPoint Communications immediately
before the reorganization became the only stockholders of NorthPoint
Communications Group immediately after the reorganization. The reorganization
allowed us to pledge the capital stock of NorthPoint Communications to the
lenders of our secured credit facility which closed in April 1999.

Stock Options and Restricted Stock

We have reserved shares of common stock for issuance under our stock option
plans. On February 26, 1998, we granted an option to purchase 247,500 shares of
common stock at an exercise price of $0.03 per share to Robert Dahl, a Director
of NorthPoint. On May 15, 1998, we granted an option to purchase 247,500 shares
of common stock at an exercise price of $0.09 per share to Reed Hundt, a
Director of NorthPoint. On June 1, 1998, we granted an option to purchase
731,250 shares of common stock at an exercise price of $0.09 per share to Henry
P. Huff, Vice President, Finance and Chief Financial Officer of NorthPoint. On
September 14, 1998, we granted an option to purchase 787,500 shares of common
stock at an exercise price of $0.55 per share to Herman W. Bluestein, Executive
Vice President and Chief Development Officer of NorthPoint. On March 22, 1999,
we granted an option to purchase 2,025,000 shares of common stock at an
exercise price of $6.67 per share to Elizabeth A. Fetter, President and Chief
Operating Officer of NorthPoint. On June 29, 1999, we granted an option to
purchase 150,000 shares of common stock at an exercise price of $32.63 per
share to Michael G. Parks, Chief Information Officer of NorthPoint. On June 29,
1999, we granted an option to purchase 100,000 shares of common stock at an
exercise price of $32.63 per share to Nancy J. Hemmenway, Vice President, Human
Resources of NorthPoint. On September 30, 1999, we granted an option to
purchase 150,000 shares of common stock at an exercise price of $18.63 per
share to Bao Le, Vice President, Operations and Engineering of NorthPoint. On
October 31, 1999, we granted Mr. Parks an option to purchase 45,000 shares of
common stock, Ms. Hemmenway an option to purchase 30,000 shares of common
stock, and Mr. Le an option to purchase 45,000 shares of common stock, each at
an exercise price of $25.69 per share. On April 17, 2000, we granted an option
to purchase 500,000 shares of common stock at an exercise price of $10.00 per
share to Michael P. Glinsky, our Executive Vice President and Chief Financial
Officer. On April 18, 2000, we granted an option to purchase 1,000,000 shares
of common stock at an exercise price of $12.125 per share to Ms. Fetter. The
option exercise prices for option grants prior to May 5, 1999, the date of our
initial public offering, were set by our board of directors and generally
reflect its best estimate of the fair value of our stock on the date of each
grant based on recent sales of our equity securities, developments in our
business and developments in the financial markets. With the exception of the
option grant to Mr. Glinsky, the option exercise prices for option grants
following our initial public offering are equal to the closing sales price for
our common stock on the last trading day prior to the date of grant. When the
board of directors elects to grant options at a lower price, we recognize
deferred compensation for the difference.

Issuance of Series C Preferred Stock

In December 1998, we began negotiations for the sale of our Series C
preferred stock. On February 19, 1999, we sold 37,715,335 shares of Series C
preferred stock at a purchase price of $1.57 per share. Purchasers of the
Series C preferred stock included funds affiliated with The Carlyle Group
(23,902,257 shares). Other purchasers of the Series C preferred stock included
Vulcan Ventures Incorporated (10,243,824 shares), Benchmark Capital Partners,
L.P. (279,616 shares), Benchmark Founders' Fund, L.P. (39,079 shares), funds
affiliated with Accel Partners (311,683 shares), The Dahl Family Trust Dated
October 31, 1989, as amended May 3, 1990 (127,477 shares), Dino Vendetti
(31,869 shares) and The Sierra Ventures Mgmt. Co. 1989 Deferred Savings Plan
FBO Henry P. Huff (15,934 shares). Andrew Rachleff, Peter Wagner and Dino
Vendetti, each of whom currently serves as a member of the board of directors,
are affiliated with Benchmark Capital,

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Accel Partners and Vulcan Ventures, respectively. All outstanding shares of
Series C preferred stock automatically converted into shares of common stock
in connection with our initial public offering.

Registration Rights

Pursuant to the Fifth Amended and Restated Rights Agreement dated March 22,
1999, as of December 31, 1999, holders of 83,139,519 shares of common stock
issued or issuable upon conversion of Series B preferred stock, Series C
preferred stock, Series D preferred stock, Series D-1 preferred stock and
Class B common stock or exercise of certain outstanding warrants
(collectively, the "Rights Holders") are entitled to certain registration
rights with respect to these shares ("Registrable Securities").

Company Registration. If we propose to register any of our or a holder's
common stock under the Securities Act, the Rights Holders are entitled to
notice of such proposed registration and the opportunity to include the
Registrable Securities in the registration. If the registration involves an
underwriting, the underwriters have the right to limit shares proposed to be
included in the registration and underwriting by the Rights Holders to 20% of
the total number of securities included in such registration and underwriting.

Requested Registration. If the holders of at least 20% of the Registrable
Securities relating to the Series B preferred stock, Series C preferred
stock, Series D preferred stock, Series D-1 preferred stock and Class B common
stock or the holders of at least 40% of the Registrable Securities relating to
certain outstanding warrants request that we file a registration statement, we
are required to use our best efforts to cause such shares to be registered,
subject to certain conditions and limitations. The holders of the Registrable
Securities relating to the Series B preferred stock, Series C preferred stock,
Series D preferred stock, Series D-1 preferred stock and Class B common stock
and of the Registrable Securities relating to certain outstanding warrants are
each entitled to two such demand registrations. If, in an underwritten public
offering, the underwriters require a limitation on the number of securities to
be included in the registration, then the number of shares of Registrable
Securities that may be included in the registration and underwriting will be
allocated (1) among all Rights Holders in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities held by the
Rights Holders at the time of filing the registration statement in the case of
a registration requested by the holders of Registrable Securities relating to
the Series B preferred stock and Series C preferred stock, and (2) first to
the holders of Registrable Securities relating to certain outstanding warrants
and then among all other Rights Holders in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities held by such
Rights Holders at the time of filing the registration statement in the case of
a registration requested by the holders of Registrable Securities relating to
certain outstanding warrants.

Registration on Form S-3. The Rights Holders have the right to require us
to register all or a portion of their Registrable Securities on Form S-3 when
this form becomes available to us, provided that the aggregate proceeds of
such registration are expected to exceed $1,000,000 or cover all remaining
Registrable Securities relating to certain warrants and provided that we are
not required to effect more than one such registration in any twelve-month
period.

Termination of Registration Rights. The registration rights terminate as to
any Rights Holder on May 5, 2004.

Other Registration Rights

In addition, we have granted to Microsoft registration rights with respect
to its shares of Class B common stock, and the shares of common stock issuable
upon conversion of these shares, to be issued upon exercise of Microsoft's
warrant. Specifically, at any time after May 5, 2000, if the holders of at
least 50% of the Microsoft registrable securities then held by Microsoft or
any of its transferees request that we file a registration statement, we are
required to use our best efforts to cause the shares to be registered, subject
to conditions and limitations. The holders of the Microsoft registrable
securities are entitled to two demand registrations. The rights of the holders
of the Microsoft registrable securities are subject to the registration rights
granted to the Rights Holders pursuant to the Rights Agreement. The
registration rights granted to Microsoft and its transferees terminate on May
5, 2004.

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Vendor Relations

Greylock IX Limited Partnership, a principal stockholder of NorthPoint, owns
more than 10% of the capital stock of Copper Mountain, a vendor of NorthPoint.
Our payments to Copper Mountain for the year ended December 31, 1999 totaled
approximately $42,500,000. We believe that the transactions with Copper
Mountain were completed on an arm's-length basis.

The Strategic Investments

The Series D-1 Preferred Stock Private Placements. In March and April 1999,
concurrently with the execution of commercial agreements, we received equity
investments from ALC Communications Corporation (an affiliate of Global
Crossing Holdings Limited), Excite@Home, Cable & Wireless USA, Inc., Concentric
Network Corporation, ICG Services, Inc. (an affiliate of ICG Communications,
Inc.), Netopia, Inc., Network Plus Corporation and Verio Inc. ALC
Communications Corporation purchased $4,900,016 of Series D-1 preferred stock.
Excite@Home purchased $5,999,994 of Series D-1 preferred stock. Cable &
Wireless USA, Inc. purchased $4,999,994 of Series D-1 preferred stock.
Concentric Network Corporation purchased $5,001,120 of Series D-1 preferred
stock. ICG Services, Inc. purchased $9,999,990 of Series D-1 preferred stock.
Netopia, Inc. purchased $999,988 of Series D-1 preferred stock. Network Plus
Corporation purchased $2,499,992 of Series D-1 preferred stock. Verio Inc.
purchased $4,400,000 of Series D-1 preferred stock. Upon completion of our
initial public offering, the Series D-1 preferred stock converted into
2,466,724 shares of Class B common stock. The Class B common stock
automatically converted into common stock in March 2000. The Series D-1
purchasers have also each agreed not to acquire more than 10% of NorthPoint's
voting stock without our consent until March 2002. In addition, each of the
Series D-1 purchasers has agreed to vote any voting securities it holds as
recommended by our board of directors, except with respect to votes pursuant to
the protective provisions of our certificate of incorporation.

Microsoft. We have entered into a commercial agreement with Microsoft, which
is described in "Business-Key Strategic and Commercial Relationships".
Microsoft purchased $30 million of our common stock in our initial public
offering. In connection with its purchase of our common stock, Microsoft
received a warrant to purchase an additional $30 million of our Class B common
stock at an exercise price of $36.00 per share. This warrant is exercisable at
any time and expires on May 5, 2004. Commencing in March 2000, the Class B
common stock may be converted into common stock on a one-for-one basis, at
Microsoft's option, provided that Microsoft would not hold more than 10% of the
voting stock of NorthPoint. The Class B common stock will automatically convert
into common stock upon transfer by Microsoft to a third party after March 2000.
This warrant, the Class B common stock issuable upon exercise of this warrant
and the common stock issuable upon the conversion of the Class B common stock
were registered by us in connection with our initial public offering. In
addition, we have granted Microsoft certain registration rights with respect to
the shares of Class B common stock (and the shares of common stock issuable
upon conversion of such shares) to be issued upon exercise of these warrants.
Microsoft has agreed not to transfer any common stock or Class B common stock
issuable upon exercise of the warrant to any non-affiliated third party until
May 5, 2000. Microsoft has also agreed not to acquire more than 10% of our
voting stock without our consent until April 2002.

Each of the above strategic investors owned less than 2.5% of our common
stock outstanding as of December 31, 1999.

Other Transactions

We have entered into employment agreements with certain of our executive
officers that are described in this prospectus under the caption "Management--
Employment Agreements and Change of Control Arrangements."

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DESCRIPTION OF OTHER INDEBTEDNESS

On December 9, 1999, we entered into a secured credit facility with a
syndicate of lenders. The secured credit facility consists of the following:

. Secured credit facility in an amount up to $55,000,000. The secured
credit facility is used for general corporate purposes. As of the date
of this registration statement, we have not borrowed any amount under
the secured credit facility. The available secured credit facility
amount will be reduced in quarterly installments beginning in March 2002
and ending in December 2005.

. Delayed draw term loan facility in the amount of $110,000,000. As of the
date of this registration statement, 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. The outstanding delayed
draw term loan amount will be reduced in quarterly installments
beginning in March 2002 and ending in December 2005.

. Term loan facility in the amount of $85,000,000. We borrowed the entire
term loan facility amount on December 9, 1999. The outstanding term loan
amount will be reduced in quarterly installments beginning in March 2002
and ending in June 2006.

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 secured 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
secured 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 securing the secured
credit facility may also secure 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 Interbank Offered Rate (LIBOR) plus, in each case, an
additional interest rate margin.

The secured credit facility contains covenants imposing certain operating
and financial restrictions on us and our subsidiaries as well as customary
affirmative covenants and industry specific covenants. The terms of the
secured credit facility restrict, among other things, our ability to:

. incur indebtedness;

. grant liens to persons other than the lenders under the credit facility
and agree to restrictions on the ability to grant liens in favor of such
lenders;

. declare dividends or sell part of the capital stock of any subsidiary;

. prepay, purchase or otherwise acquire indebtedness, including the Notes;

. make investments;

. engage in transactions with affiliates;

. engage in mergers, reorganizations and asset sales; or

. alter our line of business.

Events of default under the secured credit facility include:

. failure to pay principal, interest or other amounts when due;

. breach of any covenant or representation and warranty contained in the
loan documents;

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. customary events of bankruptcy, insolvency or dissolution affecting us
or our subsidiaries;

. the enforcement of certain judgments against us, our subsidiaries or our
assets or the assets of our subsidiaries or the seizing of material
assets by other encumbrances; and

. a change in control of the Company.

Upon the occurrence and continuation of an event of default under the
secured credit facility, the lenders are entitled to terminate their
commitments to lend, declare the outstanding amounts due and payable and
enforce their liens on our assets.

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DESCRIPTION OF THE NOTES

The new Notes, like the old Notes, will be issued pursuant to the Indenture
between NorthPoint and The Bank of New York, as trustee. The new Notes will be
entitled to the benefits of the Indenture. The form and terms of the new Notes
are the same as the form and terms of the old Notes except that (1) the new
Notes will have been registered under the Securities Act, and, therefore, the
new Notes will not bear legends restricting the transfer thereof and (2)
Holders of the new Notes will not be entitled to certain rights of Holders of
the old Notes under the Registration Rights Agreement, which rights will
terminate upon the consummation of the Exchange Offer. The terms of the new
Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939. The following
summary of the material provisions of the Indenture and the Registration Rights
Agreement does not purport to be complete and is qualified in its entirety by
reference to those agreements, including the definitions therein of certain
terms used below. Copies of those agreements are available for review at the
corporate office of the Trustee and may also be obtained from NorthPoint as set
forth below under "--Additional Information". The definitions of certain terms
used in the following summary are set forth below under "--Certain
Definitions". For purposes of this summary, the term "NorthPoint" refers only
to NorthPoint Communications Group, Inc. and not to any of its Subsidiaries
except for purposes of financial data determined on a consolidated basis.

Brief Description of the Notes

The Notes:

. will be limited to $500 million aggregate principal amount;

. will mature on February 15, 2010; and

. will bear interest at the rate of 127/8% per annum to be paid semi-
annually on February 15 and August 15 of each year, commencing on August
15, 2000, to the registered holder at the close of business on the
preceding February 1 or August 1.

Ranking of the Notes

The Notes:

. are senior obligations of NorthPoint;

. rank equal in right of payment with all existing and future senior Debt
of NorthPoint;

. rank senior in right of payment to any future subordinated Debt of
NorthPoint; and

. are effectively subordinated to any secured Debt of NorthPoint and
existing and future Debt and other liabilities (including subordinated
Debt and trade payables) of its Subsidiaries.

NorthPoint's Subsidiary has a commitment from institutional lenders to
provide $250 million of secured credit facilities. The collateral for such
credit facilities, subject to satisfaction of certain conditions, may also
secure an additional $50 million of indebtedness. The Indenture will permit
NorthPoint and its Subsidiaries to borrow up to $325 million under those
facilities (or successor facilities) and to incur substantial additional Debt,
including an unlimited amount of secured Purchase Money Debt. As of December
31, 1999, on a pro forma basis after giving effect to the issuance of the
Notes, the total amount of long-term obligations (including current portion)
was approximately $487.7 million. NorthPoint's operations are conducted through
its Subsidiaries and NorthPoint is therefore dependent upon the cash flow of
its Subsidiaries to meet its obligations, including its obligations under the
Notes. See "Risk Factors--Our Subsidiaries Must Make Payments to Us in Order
for Us to Make Payments On the Notes".

NorthPoint's Subsidiaries will have no obligation to guarantee or otherwise
pay amounts due under the Notes. NorthPoint's right, if any, to receive assets
of any Subsidiary upon any liquidation or reorganization of

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that Subsidiary (and the consequent right of Holders of Notes to participate in
those assets) will be effectively subordinated to the claims of the
Subsidiary's creditors.

NorthPoint currently has one Subsidiary which will be designated as a
Restricted Subsidiary under the Indenture. Under certain circumstances,
NorthPoint will be permitted to designate certain of its Subsidiaries,
including Subsidiaries that it creates or acquires in the future, to be
Unrestricted Subsidiaries. Unrestricted Subsidiaries are not subject to many of
the restrictive covenants in the Indenture. See "--Certain Covenants--
Designation of Restricted and Unrestricted Subsidiaries".

Principal, Maturity and Interest

NorthPoint has limited the aggregate principal amount of the Notes to $500
million, of which $400 million aggregate principal amount is offered hereby and
$100 million aggregate principal amount is available for issuance in the
future, subject to the covenant described under "--Certain Covenants--
Incurrence of Debt". The Notes will mature on February 15, 2010.

Interest on the Notes will accrue at the rate of 12 7/8% per annum and is
payable in cash semi-annually in arrears on February 15 and August 15,
commencing on August 15, 2000, to the Holders of record of the Notes on the
immediately preceding February 1 and August 1.

Interest on the Notes will accrue from the closing date of the issuance of
the Notes. Interest will be computed on the basis of a 360-day year comprised
of twelve 30-day months.

If the registration statement of which this prospectus forms a part relating
to the Exchange Offer is not declared effective, or if the exchange offer is
not consummated, within the time periods set forth herein, additional interest
will accrue and be payable on the old Notes either temporarily or permanently.
See "The Exchange Offer--Additional Interest" above. The new Notes will not
contain any provisions relating to additional interest.

Methods of Receiving Payments on the Notes

If a Holder has given wire transfer instructions to NorthPoint, we will make
all principal, premium and interest payments on those Notes in accordance with
those instructions. All other payments on the Notes will be made at the office
or agency of the Paying Agent and Registrar in New York, New York unless we
elect to make interest payments by check mailed to the Holders at their address
set forth in the register of Holders.

Paying Agent and Registrar for the Notes

The Trustee will initially act as Paying Agent and Registrar. We may change
the Paying Agent or Registrar without prior notice to the Holders of the Notes,
and we or any of our Subsidiaries may act as Paying Agent or Registrar.

Form, Denomination, Transfer, Exchange and Book-Entry Procedures

NorthPoint issued the old Notes only in fully registered form, without
interest coupons, in minimum denominations of $1,000 principal amount and any
integral multiples of $1,000 in excess thereof and will issue the new Notes in
such manner also. Notes will not be issued in bearer form.

The Notes will initially be issued in the form of global securities held in
book-entry form. The Notes will be deposited with the Trustee as custodian for
DTC, and DTC or its nominee will initially be the sole registered holder of the
Notes for all purposes under the Indenture. Unless it is exchanged in whole or
in part for debt securities in definitive form as described below, a global
security may not be transferred. However, transfers of the whole security
between DTC and its nominee or their respective successors are permitted.

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Upon the issuance of a global security, DTC or its nominee will credit on
its internal system the principal amount of the individual beneficial interest
represented by the global security acquired by the persons in this offering.
Ownership of beneficial interests in a global security will be limited to
persons that have accounts with DTC or persons that hold interests through
participants. Ownership of beneficial interests will be shown on, and the
transfer of that ownership interest will be effected only through, records
maintained by DTC or its nominee relating to interests of participants and the
records of participants relating to interests of persons other than
participants. The laws of some jurisdictions require that some purchasers of
securities take physical delivery of the securities in definitive form. These
limits and laws may impair the ability to transfer beneficial interests in a
global security.

Payments of principal of, premium, if any, and interest on global securities
registered in the name of DTC's nominee will be made in immediately available
funds to DTC's nominee as the registered owner of the global securities.
NorthPoint and the Trustee will treat DTC's nominee as the owner of the global
securities for all other purposes as well. Accordingly, we, the Trustee, any
paying agent and the initial purchasers will have no direct responsibility or
liability for any aspect of the records relating to payments made on account of
beneficial interests in the global securities or for maintaining, supervising
or reviewing any records relating to these beneficial interests. It is DTC's
current practice, upon receipt of any payment of principal or interest, to
credit direct participants' accounts on the payment date according to their
respective holdings of beneficial interests in the global securities. These
payments will be the responsibility of the direct and indirect participants and
not of DTC, the Trustee, the initial purchasers or us.

So long as DTC or its nominee is the registered owner or holder of the
global security, DTC or its nominee, as the case may be, will be considered the
sole owner or holder of the notes represented by the global security for the
purposes of:

. receiving payment on the Notes;

. receiving notices; and

. for all other purposes under the Indenture and the Notes.

Beneficial interests in the Notes will be evidenced only by, and transfers of
the Notes will be effected only through, records maintained by DTC and its
participants.

Except as described above, owners of beneficial interests in a global
security will not be entitled to receive physical delivery of certificated
notes in definitive form and will not be considered the holders of the global
security for any purposes under the Indenture. Accordingly, each person owning
a beneficial interest in a global security must rely on the procedures of DTC.
And, if that person is not a participant, the person must rely on the
procedures of the participant through which that person owns its interest to
exercise any rights of a holder under the Indenture. Under existing industry
practices, if NorthPoint requests any action of holders or an owner of a
beneficial interest in a global security desires to take any action under the
Indenture, DTC would authorize the participants holding the relevant beneficial
interest to take that action. The participants then would authorize beneficial
owners owning through the participants to take the action or would otherwise
act upon the instructions of beneficial owners owning through them.

DTC has advised NorthPoint that it will take any action permitted to be
taken by a holder of Notes only at the direction of one or more participants to
whose account with DTC interests in the global security are credited. Further,
DTC will take action only as to the portion of the aggregate principal amount
at maturity of the Notes as to which the participant or participants has or
have given the direction.

Although DTC has agreed to the procedures described above in order to
facilitate transfers of interests in global securities among participants of
DTC, it is under no obligation to perform these procedures, and the procedures
may be discontinued at any time. None of NorthPoint, the Trustee, any agent of
NorthPoint or the initial purchasers will have any responsibility for the
performance by DTC or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.

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DTC has provided the following information to us. DTC is a:

. limited-purpose trust company organized under the New York Banking Law;

. a banking organization within the meaning of the New York Banking Law;

. a member of the U.S. Federal Reserve System;

. a clearing corporation within the meaning of the New York Uniform
Commercial Code; and

. a clearing agency registered under the provisions of Section 17A of the
Securities Exchange Act.

Certificated Notes

Notes represented by a global security are exchangeable for certificated
Notes only if:

. DTC notifies NorthPoint that it is unwilling or unable to continue as
depository or if DTC ceases to be a registered clearing agency, and a
successor depository is not appointed by NorthPoint within 90 days;

. NorthPoint determines not to require all of the Notes to be represented
by a global security and notifies the trustee of its decision; or

. an Event of Default or an event which, with the giving of notice or
lapse of time, or both, would constitute an Event of Default relating to
the Notes represented by the global security has occurred and is
continuing.

Any global security that is exchangeable for certificated Notes in
accordance with the preceding sentence will be transferred to, and registered
and exchanged for, certificated Notes in authorized denominations and
registered in the names as DTC or its nominees may direct. However, a global
security is only exchangeable for a global security of like denomination to be
registered in the name of DTC or its nominee. If a global security becomes
exchanged for certificated Notes:

. certificated Notes will be issued only in fully registered form in
denominations of $1,000 or integral multiples of $1,000;

. payment of principal, premium, if any, and interest on the certificated
Notes will be payable, and the transfer of the certificated Notes will
be registrable, at the office or agency of NorthPoint maintained for
these purposes; and

. no service charge will be made for any issuance of the certificated
Notes, although NorthPoint may require payment of a sum sufficient to
cover any tax or governmental charge imposed in connection with the
issuance.

Optional Redemption

At any time prior to February 15, 2003, NorthPoint may on any one or more
occasions redeem up to 35% of the Notes issued under the Indenture at a
redemption price of 112.875% of the aggregate principal amount of the Notes,
plus accrued and unpaid interest to the redemption date, with the net cash
proceeds (but only to the extent such proceeds consist of cash or Cash
Equivalents) of one or more Public Equity Offerings or Strategic Equity
Placements; provided that

(1) at least 65% of the aggregate principal amount of the Notes issued
under the Indenture remains outstanding immediately after the occurrence of
such redemption (excluding Notes held by us and our Subsidiaries); and

(2) we must mail a notice of redemption no later than 30 days after the
related Public Equity Offering or Strategic Equity Placement and must
consummate the redemption within 60 days of the closing of such Public
Equity Offering or Strategic Equity Placement.

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Except pursuant to the preceding paragraph, the Notes will not be redeemable
at NorthPoint's option prior to February 15, 2005.

On or after February 15, 2005, NorthPoint may redeem all or a part of the
Notes upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below, plus
accrued and unpaid interest to the redemption date, if redeemed during the
twelve-month period beginning on February 15 of the years indicated below:

<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2005.............................................................. 106.438%
2006.............................................................. 104.292%
2007.............................................................. 102.146%
2008 and thereafter............................................... 100.000%
</TABLE>

Selection and Notice

If less than all of the Notes are to be redeemed at any time, the Trustee
will select Notes for redemption as follows:

(1) if the Notes are listed, in compliance with the requirements of the
principal national securities exchange on which the Notes are listed; or

(2) if the Notes are not listed, on a pro rata basis, by lot or by such
other method as the Trustee shall deem fair and appropriate.

No Notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days
before the redemption date to each Holder of Notes to be redeemed at its
registered address. Notices of redemption may not be conditional.

If any Note is to be redeemed in part only, the notice of redemption that
relates to that Note shall state the portion of the principal amount thereof to
be redeemed. A new Note in principal amount equal to the unredeemed portion of
the original Note will be issued in the name of the Holder thereof upon
cancellation of the original Note. Notes called for redemption become due on
the date fixed for redemption. On and after the redemption date, interest
ceases to accrue on Notes or portions of them called for redemption.

Mandatory Redemption

NorthPoint will not be required to make mandatory redemption or sinking fund
payments with respect to the Notes.

Repurchase at the Option of Holders

Change of Control

If a Change of Control occurs, each Holder of Notes will have the right to
require NorthPoint to repurchase all or any part (equal to $1,000 or an
integral multiple thereof) of that Holder's Notes pursuant to the Change of
Control Offer. In the Change of Control Offer, NorthPoint will offer a Change
of Control Payment equal to 101% of the aggregate principal amount of Notes
repurchased, plus accrued and unpaid interest to the date of purchase. Within
ten days following any Change of Control, NorthPoint will mail a notice to each
Holder describing the transaction or transactions that constitute the Change of
Control and offering to repurchase Notes on the date specified in such notice,
pursuant to the procedures required by the Indenture and described in such
notice. NorthPoint will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control.

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On the Change of Control Payment Date, NorthPoint will, to the extent
lawful:

(1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer;

(2) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all Notes or portions thereof so tendered;
and

(3) deliver or cause to be delivered to the Trustee the Notes so
accepted together with an Officers' Certificate stating the aggregate
principal amount of Notes or portions thereof being purchased by
NorthPoint.

The Paying Agent will promptly mail to each Holder of Notes so tendered the
Change of Control Payment for those Notes. The Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered; provided that each such new Note will be in a principal amount of
$1,000 or an integral multiple thereof.

NorthPoint will publicly announce the results of the Change of Control Offer
on or as soon as practicable after the Change of Control Payment Date.

The provisions described above that require NorthPoint to make a Change of
Control Offer following a Change of Control will be applicable whether or not
any other provisions of the Indenture are applicable. Except as described above
with respect to a Change of Control, the Indenture does not contain provisions
that permit the Holders of the Notes to require that NorthPoint repurchase or
redeem the Notes in the event of a takeover, recapitalization or similar
transaction. Accordingly, the Indenture may not afford the Holders of Notes
protection in all circumstances from the adverse aspects of a highly leveraged
transaction, reorganization, restructuring, merger or similar transaction.

The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of NorthPoint and its Subsidiaries taken as a whole. Although
there is a limited body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, it may be uncertain whether a Holder of Notes will be able to
require NorthPoint to repurchase the Notes as a result of a sale, lease,
transfer, conveyance or other disposition of less than all of the assets of
NorthPoint and its Subsidiaries taken as a whole.

NorthPoint will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by
NorthPoint and purchases all Notes validly tendered and not withdrawn under
such Change of Control Offer.

Although consummation of a transaction involving a Change of Control would
require the redemption or repurchase of the Notes, there can be no assurance
that NorthPoint or the acquiring party will have sufficient financial resources
to effect such redemption or repurchase. In the event of a Change of Control,
other instruments evidencing Debt of NorthPoint and its Subsidiaries may also
require NorthPoint or its Subsidiaries to make an offer to repurchase such
Debt. NorthPoint does not currently have adequate financial resources to effect
such repurchases and repurchase Notes upon a Change of Control. There can be no
assurance that NorthPoint will have such resources in the future. The inability
of NorthPoint to repurchase the Notes upon a Change of Control to the extent
required above would constitute an Event of Default.

In addition, there may be restrictions contained in instruments evidencing
Debt incurred by NorthPoint or its Subsidiaries permitted under the Indenture
which restrict or prohibit the ability of NorthPoint to effect any repurchase
required under the Indenture in connection with a Change of Control.

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Asset Sales

NorthPoint will not, and will not permit any of its Restricted Subsidiaries
to, consummate an Asset Sale unless:

(1) NorthPoint (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of the Asset Sale at least equal to the
Fair Market Value (determined in accordance with clause (2) below) of the
assets or Equity Interests issued or sold or otherwise disposed of;

(2) such Fair Market Value is determined conclusively by NorthPoint's
Board of Directors and evidenced by a resolution of the Board of Directors
set forth in an Officers' Certificate delivered before or after such Asset
Sale to the Trustee; and

(3) at least 75% of the consideration for such disposition received by
NorthPoint or the Restricted Subsidiary is in the form of any combination
of cash or Cash Equivalents. For purposes of this provision, each of the
following are considered cash:

(a) any liabilities (as shown on NorthPoint's or the Restricted
Subsidiary's most recent balance sheet) of NorthPoint or the Restricted
Subsidiary (other than contingent liabilities and liabilities that are
by their terms subordinated to the Notes or any Guarantee thereof) that
are assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases NorthPoint or the Restricted
Subsidiary from further liability; and

(b) any securities, notes or other obligations received by
NorthPoint or the Restricted Subsidiary from such transferee that are
contemporaneously (subject to ordinary settlement periods) converted by
NorthPoint or the Restricted Subsidiary into cash (to the extent of the
cash received in that conversion).

NorthPoint and its Restricted Subsidiaries will be permitted to consummate
an Asset Sale without complying with clause (3) of the immediately preceding
paragraph if:

(1) NorthPoint (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the
Fair Market Value (as determined in accordance with clause (2) of the
preceding paragraph) of the assets or other property sold, issued or
otherwise disposed of; and

(2) at least 75% of the consideration for such Asset Sale constitutes
any combination of cash, Cash Equivalents and Productive Assets; and

(3) each of the following are treated as Net Cash Proceeds for purposes
of the provisions of the next paragraph:

(a) any cash consideration;

(b) any non-cash consideration not constituting Productive Assets
received by NorthPoint or any of its Restricted Subsidiaries in
connection with such Asset Sale that is converted into or sold or
otherwise disposed of for cash or Cash Equivalents at any time within
365 days after such Asset Sale; and

(c) any Productive Assets constituting cash or Cash Equivalents
received by NorthPoint or any of its Restricted Subsidiaries in
connection with such Asset Sale.

Within 365 days after the receipt of any Net Cash Proceeds from an Asset
Sale, NorthPoint (or the Restricted Subsidiary, as the case may be) may apply
such Net Cash Proceeds to:

(1) permanently reduce the amounts permitted to be borrowed by
NorthPoint or any Restricted Subsidiary under the terms of any of its Debt
that is not subordinated Debt; or

(2) purchase Telecommunications Related Assets or Voting Stock of any
Person engaged in the Telecommunications Business in the U.S. (provided
that such Person concurrently becomes a Restricted

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Subsidiary of NorthPoint). NorthPoint may treat the purchase of such
Telecommunications Related Assets or Voting Stock within 180 days prior to
such Asset Sale as constituting a purchase of such Telecommunications
Related Assets or Voting Stock within such 365-day period.

Pending the final application of any such Net Cash Proceeds, NorthPoint may
temporarily reduce revolving credit borrowings or otherwise invest such Net
Cash Proceeds in any manner that is not prohibited by the Indenture.

Any Net Cash Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute Excess Proceeds. When the
aggregate amount of Excess Proceeds exceeds the greater of $10 million or 10%
of the Consolidated Tangible Net Worth of NorthPoint, NorthPoint will make an
Asset Sale Offer to all Holders of Notes to repurchase the maximum principal
amount of Notes (and to the extent required by the terms thereof, any other
Debt of NorthPoint that is pari passu with the Notes at a price no greater than
100% of the principal amount thereof plus accrued interest to the date of
purchase or 100% of the accreted value thereof in the case of Debt issued at a
discount) that may be purchased out of the Excess Proceeds. The offer price in
any Asset Sale Offer will be equal to 100% of the principal amount of the Notes
to be purchased, plus accrued and unpaid interest to the date of purchase, and
will be payable in cash. If any Excess Proceeds remain after consummation of an
Asset Sale Offer, NorthPoint may use those Excess Proceeds for any purpose not
otherwise prohibited by the Indenture. If the aggregate principal amount of
Notes tendered pursuant to such Asset Sale Offer exceeds the amount of Excess
Proceeds, the Trustee shall select the Notes to be purchased on a pro rata
basis. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds
shall be reset at zero.

Notwithstanding the foregoing, these provisions shall not apply to any Asset
Sale which constitutes a transfer, conveyance, sale, lease or other disposition
of all or substantially all of NorthPoint's properties or assets as described
below under "--Certain Covenants-Merger, Consolidation, or Sale of Assets".

NorthPoint will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable to the repurchase of Notes
pursuant to an Asset Sale Offer. To the extent that the provisions of any
securities laws or regulations conflict with the Asset Sale provisions of the
Indenture, NorthPoint shall comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under the
Asset Sale provisions of the Indenture by virtue thereof.

Certain Covenants

Restricted Payments

NorthPoint will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly:

(1) declare or pay any dividend or make any other payment or
distribution on account of NorthPoint's or any of its Restricted
Subsidiaries' Equity Interests (including, without limitation, any payment
in connection with any merger or consolidation involving NorthPoint or any
of its Restricted Subsidiaries) or to the direct or indirect holders of
NorthPoint's or any of its Restricted Subsidiaries' Equity Interests in
their capacity as such (other than dividends or distributions payable in
Equity Interests (other than Disqualified Stock) of NorthPoint or to
NorthPoint or a Restricted Subsidiary of NorthPoint);

(2) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or
consolidation involving NorthPoint) any Equity Interests of NorthPoint or
any direct or indirect parent of NorthPoint (other than any such Equity
Interests owned by NorthPoint or any Restricted Subsidiary of NorthPoint);

(3) make any payment on or with respect to, or purchase, redeem, defease
or otherwise acquire or retire for value, any Debt that is subordinated to
the Notes, except a payment of interest or principal at Stated Maturity; or

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(4) make any Restricted Investment (all such payments and other actions
set forth in clauses (1) through (4) above being collectively referred to
as "Restricted Payments"),

unless, at the time of and after giving effect to such Restricted
Payment:

(1) no Default or Event of Default has occurred and is continuing or
would occur as a consequence thereof; and

(2) NorthPoint would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable two-quarter Measurement Period, have
been permitted to incur at least $1.00 of additional Debt pursuant to the
Debt to Annualized Cash Flow Ratio test set forth in the first paragraph of
the covenant described below under the caption "--Incurrence of Debt"; and

(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by NorthPoint and its Restricted
Subsidiaries after the Closing Date (excluding Restricted Payments
permitted by clauses (2), (3) and (4) of the next succeeding paragraph), is
less than the sum, without duplication, of

(a) 50% of the Consolidated Net Income of NorthPoint for the period
(taken as one accounting period) from the beginning of the first fiscal
quarter commencing after the date of the Indenture to the end of
NorthPoint's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a
deficit, less 100% of such deficit), plus

(b) 100% of the aggregate net cash proceeds received by NorthPoint
since the Closing Date as a contribution to its common equity capital
or from the issue or sale of Equity Interests of NorthPoint (other than
Disqualified Stock) or from the issue or sale of Disqualified Stock or
debt securities of NorthPoint that have been converted into such Equity
Interests (other than Equity Interests (or Disqualified Stock or
convertible debt securities) sold to a Subsidiary of NorthPoint), plus

(c) 100% of the net reduction in Investments in any Unrestricted
Subsidiary since the end of the first fiscal quarter ending after the
Closing Date resulting from payments on interest on Debt, dividends,
repayments of loans or advances, or other transfers of assets, in each
case to NorthPoint or any of its Restricted Subsidiaries (except to the
extent that any such payment is included in the calculation of
Consolidated Net Income) or from redesignations of Unrestricted
Subsidiaries as Restricted Subsidiaries (provided that the amount
included in this clause (c) shall not exceed the amount of Investments
previously made by NorthPoint and its Restricted Subsidiaries in such
Unrestricted Subsidiary.)

If NorthPoint or any of its Restricted Subsidiaries makes a Restricted
Payment which, at the time it is made, would in the good faith determination of
NorthPoint be permitted under the Indenture, such Restricted Payment shall be
deemed to have been made in compliance with the Indenture notwithstanding any
subsequent adjustments to NorthPoint's financial statements made in good faith
that affect Consolidated Net Income for any period.

The preceding provisions will not prohibit:

(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at the date of declaration such payment would have
complied with the provisions of the Indenture;

(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Debt or Equity Interests of NorthPoint or
its Restricted Subsidiaries in exchange for, or out of the net cash
proceeds of the substantially concurrent sale (other than to a Subsidiary
of NorthPoint) of, other Equity Interests of NorthPoint (other than any
Disqualified Stock); provided that the amount of any such net cash proceeds
that are used for any such redemption, repurchase, retirement, defeasance
or other acquisition shall be excluded from clause (3)(b) of the preceding
paragraph;

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(3) the defeasance, redemption, repurchase or other acquisition of
subordinated Debt with the net cash proceeds from an incurrence of
Permitted Refinancing Debt;

(4) the payment of any dividend by a Restricted Subsidiary of NorthPoint
to the holders of its common Equity Interests on a pro rata basis, or by
NorthPoint and/or any of its Restricted Subsidiaries in respect of
Disqualified Stock permitted to have been issued under the "Incurrence of
Debt" covenant;

(5) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of NorthPoint or any Restricted Subsidiary of
NorthPoint held by any member of NorthPoint's or any of its Restricted
Subsidiaries' management; provided that (a) the aggregate price paid for
all such repurchased, redeemed, acquired or retired Equity Interests shall
not exceed $2,000,000 plus the aggregate cash proceeds received by
NorthPoint since the Closing Date from issuances of its Equity Interests to
officers, managers, directors or employees of NorthPoint or any of its
Subsidiaries and (b) no Default or Event of Default shall have occurred and
be continuing immediately after such transaction;

(6) Investments made out of the net cash proceeds of a substantially
concurrent issue and sale (other than to a Subsidiary of NorthPoint) of
Equity Interests (other than Disqualified Stock) of NorthPoint; provided
that the amount of any such net cash proceeds that are used for any such
Investment shall be excluded from clause (3)(b) of the preceding paragraph;
and

(7) other Restricted Payments not to exceed $10 million in the aggregate
at any time outstanding (with Restricted Payments pursuant to this clause
not being counted as Restricted Payments for purposes of clause (3) of the
immediately preceding paragraph).

The amount of all Restricted Payments (other than cash) will be the Fair
Market Value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by NorthPoint or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The Fair Market Value of any non-cash Restricted Payment will be determined
conclusively by the Board of Directors whose resolution with respect thereto
shall be delivered to the Trustee.

Incurrence of Debt

NorthPoint will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, issue, assume, Guarantee or
otherwise become after the Closing Date directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any Debt
(including Acquired Debt); provided, however, that NorthPoint and its
Restricted Subsidiaries may incur Debt (including Acquired Debt) if
NorthPoint's Debt to Annualized Cash Flow Ratio is no greater than 6.0 to 1.0.

The first paragraph of this covenant will not prohibit the incurrence of
any of the following items of Debt (collectively, "Permitted Debt"):

(1) the incurrence by NorthPoint and/or any of its Restricted
Subsidiaries of Debt under the Credit Facility; provided that the aggregate
principal amount (with letters of credit being deemed to have a principal
amount equal to the maximum reimbursement obligations of NorthPoint and/or
any of its Restricted Subsidiaries thereunder) does not exceed $325 million
at any one time outstanding, less the aggregate amount of all Net Cash
Proceeds of Asset Sales applied to permanently reduce the commitments with
respect to such Debt pursuant to the covenant described above under the
caption "--Repurchase at the Option of Holders--Asset Sales";

(2) the incurrence by NorthPoint and/or any of its Restricted
Subsidiaries of Purchase Money Debt;

(3) the incurrence by NorthPoint and its Restricted Subsidiaries of
Existing Debt;

(4) the incurrence by NorthPoint and/or any of its Restricted
Subsidiaries of Debt in an aggregate principal amount (or, in the case of
Debt issued at a discount, the accreted amount at the time of incurrence,
determined in accordance with GAAP) that does not exceed $50 million at any
one time outstanding;

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(5) the incurrence by NorthPoint and/or any of its Restricted
Subsidiaries of Debt in an aggregate principal amount that does not exceed
2.5 times the sum of the net cash proceeds received by NorthPoint after the
Closing Date in connection with any issuance and sale of Equity Interests
(other than Disqualified Stock), plus the Fair Market Value of Equity
Interests (other than Disqualified Stock) issued in connection with an
acquisition of a Telecommunications Business or Telecommunications Related
Assets; provided that such Debt does not mature prior to the Stated
Maturity of the Notes or has a Weighted Average Life to Maturity at least
equal to the Notes;

(6) the incurrence by NorthPoint of Debt represented by the principal
amount of Notes originally issued under the Indenture;

(7) the incurrence by NorthPoint or any of its Restricted Subsidiaries
of Permitted Refinancing Debt in exchange for, or the net proceeds of which
are used to refund, refinance or replace Debt (other than Intercompany
Debt) that was permitted by the Indenture to be incurred under the first
paragraph hereof or clauses (2), (3), (5) or (6) of this paragraph;

(8) the incurrence by NorthPoint or any of its Restricted Subsidiaries
of Intercompany Debt; provided, however, that:

(a) any subsequent issuance or transfer of Equity Interests that
results in any such Debt being held by a Person other than NorthPoint or
a Restricted Subsidiary of NorthPoint; and

(b) any sale or other transfer of any such Debt to a Person that is
not either NorthPoint or a Restricted Subsidiary of NorthPoint

shall be deemed, in each case, to constitute an incurrence of such Debt by
NorthPoint or such Restricted Subsidiary, as the case may be, that was not
permitted by this clause (8);

(9) the incurrence by NorthPoint or any of its Restricted Subsidiaries
of Hedging Obligations; and

(10) Debt consisting of performance and other similar bonds and
reimbursement obligations Incurred in the ordinary course of business
securing the performance of contractual, franchise or license obligations
of NorthPoint or a Restricted Subsidiary, or in respect of a letter of
credit obtained to secure such performance.

For purposes of determining compliance with this "Incurrence of Debt"
covenant, in the event that an item of Debt meets the criteria of more than
one of the categories of Permitted Debt described in clauses (1) through (10)
above, or is entitled to be incurred pursuant to the first paragraph of this
covenant, NorthPoint will be permitted, in its sole discretion, to classify
such item of Debt in any manner that complies with this covenant. Accrual of
interest and accretion or amortization of original issue discount will not be
deemed to be an incurrence of Debt for purposes of the Indenture. The
determination of any particular amount of Debt under this covenant shall be
made without duplication for Guarantees and Liens supporting Debt otherwise
included in the determination of a particular amount.

Liens

NorthPoint will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, assume or suffer to exist any Lien
on any asset now owned or hereafter acquired, or any income or profits
therefrom, or assign or convey any right to receive income therefrom, except
Permitted Liens without making, or causing such Restricted Subsidiary to make,
effective provision for securing the Notes:

(1) equally and ratably with (or prior to) such Debt as to such property
for so long as such Debt will be so secured; or

(2) in the event such Debt is Debt of NorthPoint which is subordinate in
right of payment to the Notes, prior to such Debt as to such property for
so long as such Debt will be so secured.

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Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries

NorthPoint will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to:

(1) pay dividends or make any other distributions to NorthPoint or any
of its Restricted Subsidiaries on its Capital Stock, or with respect to any
other interest or participation in, or measured by, its profits, or pay any
indebtedness owed to NorthPoint or any of its Restricted Subsidiaries;

(2) make loans or advances to NorthPoint or any of its Restricted
Subsidiaries; or

(3) transfer any of its properties or assets to NorthPoint or any of its
Restricted Subsidiaries.

However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:

(1) Existing Debt as in effect on the Closing Date;

(2) the Credit Facility;

(3) the Indenture and the Notes;

(4) applicable law;

(5) any instrument governing Debt or Capital Stock of a Person acquired
by NorthPoint or any of its Restricted Subsidiaries as in effect at the
time of such acquisition (except to the extent such Debt was incurred in
connection with or in contemplation of such acquisition), which encumbrance
or restriction is not applicable to any Person, or the properties or assets
of any Person, other than the Person, or the property or assets of the
Person, so acquired, provided that, in the case of Debt, such Debt was
permitted by the terms of the Indenture to be incurred;

(6) customary non-assignment provisions in contracts entered into in the
ordinary course of business;

(7) customary restrictions on encumbrance, transfer or disposition of
financed assets pursuant to agreements governing Purchase Money Debt
permitted by the Indenture on the property so acquired;

(8) any agreement for the sale of a Restricted Subsidiary that contains
restrictions applicable to that Restricted Subsidiary pending its sale;

(9) Permitted Refinancing Debt, provided that the restrictions contained
in the agreements governing such Permitted Refinancing Debt are no more
restrictive, taken as a whole, than those contained in the agreements
governing the Debt being refinanced;

(10) any restriction on the sale or other disposition of assets or
property securing Debt as a result of a Permitted Lien, or other Lien
permitted to be incurred pursuant to the provisions of the covenant
described above under the caption "--Liens", on such assets or property;

(11) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements and other similar agreements
entered into in the ordinary course of business; and

(12) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business.

Merger, Consolidation, or Sale of Assets

NorthPoint may not: (1) consolidate or merge with or into another Person;
or (2) sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets, in one or more related
transactions, to another corporation, Person or entity unless:

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(1) either: (a) NorthPoint is the surviving corporation; or (b) the
entity or the Person formed by or surviving any such consolidation or
merger (if other than NorthPoint) or to which such sale, assignment,
transfer, lease, conveyance or other disposition was made is a corporation
organized or existing under the laws of the United States, any state
thereof or the District of Columbia;

(2) the entity or Person formed by or surviving any such consolidation
or merger (if other than NorthPoint) or the entity or Person to which such
sale, assignment, transfer, lease, conveyance or other disposition was made
assumes all the obligations of NorthPoint under the Notes, the Indenture
and the Registration Rights Agreement pursuant to a supplemental indenture
in a form reasonably satisfactory to the Trustee;

(3) immediately after such transaction no Default or Event of Default
exists; and

(4) except in the case of a merger of NorthPoint with or into a Wholly
Owned Restricted Subsidiary of NorthPoint, NorthPoint or the entity or
Person formed by or surviving any such consolidation or merger (if other
than NorthPoint), or to which such sale, assignment, transfer, lease,
conveyance or other disposition was made:

(a) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of
NorthPoint immediately preceding the transaction; and

(b) will have a Debt to Annualized Cash Flow Ratio of NorthPoint
immediately after the transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the
applicable two-quarter Measurement Period equal to or less than the
Debt to Annualized Cash Flow Ratio of NorthPoint immediately preceding
the transaction.

Alternatively, clause (4) of the preceding sentence may be satisfied by any
other Person which:

(1) assumes or Guarantees the obligations of NorthPoint under the Notes,
the Indenture and the Registration Rights Agreement pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee;

(2) would, as a result of the applicable transaction, properly classify
NorthPoint as a consolidated subsidiary in accordance with GAAP; and

(3) would, if the conditions set forth in clauses (a) and (b) of the
preceding sentence were tested substituting such Person for NorthPoint,
satisfy such conditions.

Upon any consolidation or merger or any sale, assignment, conveyance, lease,
transfer or other disposition of all or substantially all of the assets of
NorthPoint in accordance with the foregoing in which NorthPoint is not the
surviving corporation, then the successor corporation formed by such a
consolidation or into which NorthPoint is merged or to which such transfer is
made, will succeed to, and be substituted for, and may exercise every right and
power of, NorthPoint under the Indenture with the same effect as if such
successor corporation had been named as NorthPoint therein. Thereafter, except
in the case of (i) any lease or (ii) any sale, assignment, conveyance,
transfer, lease or other disposition to a Restricted Subsidiary of NorthPoint,
NorthPoint shall be discharged from all obligations and covenants under the
Indenture and the Notes.

Although there is a limited body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, it may be uncertain whether the foregoing
provisions would apply to a sale, lease, transfer, conveyance or other
disposition of less than all of the assets of NorthPoint.

Transactions with Affiliates

NorthPoint will not, and will not permit any of its Restricted Subsidiaries
to, make any payment to, or sell, lease, transfer or otherwise dispose of any
of its properties or assets to, or purchase any property or assets from,

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or enter into or make or amend any transaction, contract, agreement,
understanding, loan, advance or Guarantee with, or for the benefit of, any
Affiliate (each, an "Affiliate Transaction"), unless:

(1) such Affiliate Transaction is on terms that are no less favorable to
NorthPoint or such Restricted Subsidiary than those that could reasonably
have been obtained in a comparable transaction by NorthPoint or such
Restricted Subsidiary with a non-Affiliate; and

(2) NorthPoint delivers to the Trustee:

(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $5
million but less than or equal to $10 million, an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (1)
above; and

(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$10 million, a resolution of the Board of Directors set forth in an
Officer's Certificate certifying that such Affiliate Transaction
complies with clause (1) above and that such Affiliate Transaction has
been approved by a majority of the disinterested members of the Board of
Directors, or an opinion as to the fairness to the Holders of such
Affiliate Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national standing.

The following items will not be deemed to be Affiliate Transactions:

(1) any employment agreement and related arrangement entered into by
NorthPoint or any of its Restricted Subsidiaries in the ordinary course of
business;

(2) transactions between or among NorthPoint and/or its Restricted
Subsidiaries;

(3) payment of reasonable directors fees to Persons who are not
otherwise Affiliates of NorthPoint;

(4) Restricted Payments that are permitted by the provisions of the
Indenture described above under the caption "--Restricted Payments";

(5) loans and advances to employees in the ordinary course of business
consistent with past practice; and

(6) commercial transactions in the ordinary course of business with
Affiliates of NorthPoint on terms that are customary in the
Telecommunications Business or consistent with past practices.

Limitations on Issuances of Guarantees of Debt

NorthPoint will not permit any Subsidiary, directly or indirectly, to
Guarantee, assume or in any other manner become liable with respect to any
Pari Passu Debt or Subordinated Debt (other than Debt permitted under clause
(1) under the second paragraph of the covenant described above under the
caption "--Incurrence of Debt") of NorthPoint unless such Subsidiary
simultaneously executes and delivers a supplemental indenture to the Indenture
providing for a Guarantee of the Notes on the same terms as the Guarantee of
such Debt, except that:

(1) such Guarantee need not be secured unless required pursuant to the
caption "--Liens" above; and

(2) if such Debt is by its terms expressly subordinated to the Notes,
any such assumption, Guarantee or other liability of such Subsidiary with
respect to such Debt shall be subordinated to such Subsidiary's Guarantee
of the Notes at least to the same extent as such Debt is subordinated to
the Notes.

Notwithstanding the preceding paragraph, any Guarantee by a Subsidiary of
the Notes will provide by its terms that it (and all Liens securing the same)
will be automatically and unconditionally released and discharged upon (i) any
sale, exchange or transfer, to any Person not an Affiliate of NorthPoint, of
all of

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NorthPoint's Capital Stock in, or all or substantially all of the assets of,
such Subsidiary, which transaction is in compliance with the terms of the
Indenture and in which such Subsidiary is released from its Guarantees of other
Debt of NorthPoint or any of its Subsidiaries, (ii) the designation of such
Subsidiary as an Unrestricted Subsidiary in compliance with the covenant
described below under "--Designation of Restricted and Unrestricted
Subsidiaries" or (iii) the release of such Subsidiary from all of its
obligations under all of its Guarantees of Debt of NorthPoint.

Limitations on Issuances and Sales of Equity Interests in Restricted
Subsidiaries

NorthPoint will not, and will not permit any of its Restricted Subsidiaries
to, issue, transfer, convey, sell, lease or otherwise dispose of any Equity
Interests in any Restricted Subsidiary of NorthPoint to any Person, unless:

(1) such issuance or disposition is to NorthPoint or another Restricted
Subsidiary;

(2) such issuance or disposition is to directors as director's
qualifying shares, but only to the extent required under applicable law;

(3) such issuance or disposition is treated by NorthPoint as an Asset
Sale and the Net Cash Proceeds from such issuance or disposition are
applied in accordance with the covenant described above under the caption
"--Repurchase at the Option of Holders--Asset Sales";

(4) such issuance or disposition is of Disqualified Stock and is
permitted under the covenant described above under "--Incurrence of Debt";
or

(5) such disposition is of Equity Interests of a Restricted Subsidiary
(other than pursuant to clauses (1) and (2) above), if such Restricted
Subsidiary would no longer be a Restricted Subsidiary immediately after
such transaction and any Investment in such Person remaining after giving
effect to such disposition would have been permitted to be made under the
covenant described above under the caption "--Restricted Payments".

Business Activities

NorthPoint and its Restricted Subsidiaries may not, directly or indirectly,
engage in any business other than the Telecommunications Business.

Limitations on Sale and Leaseback Transactions

NorthPoint and its Restricted Subsidiaries will not, directly or indirectly,
enter into, assume, Guarantee or otherwise become liable with respect to any
Sale and Leaseback Transactions; provided that NorthPoint or any Restricted
Subsidiary of NorthPoint may enter into any such transaction if:

(1) NorthPoint or the Restricted Subsidiary would be permitted under the
covenants described above under "--Incurrence of Debt" and "--Liens" to
incur secured Debt in an amount equal to the Attributable Debt with respect
to such transaction;

(2) the consideration received by NorthPoint or the Restricted
Subsidiary from such transaction is at least equal to the Fair Market Value
of the property being transferred; and

(3) the Net Cash Proceeds received by NorthPoint or the Restricted
Subsidiary from such transaction are applied in accordance with the
covenant described above under the caption "--Repurchase at the Option of
Holders--Asset Sales".

Designation of Restricted and Unrestricted Subsidiaries

The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary,

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all outstanding Investments by NorthPoint and its Restricted Subsidiaries
(except to the extent repaid in cash or Cash Equivalents) in the Subsidiary so
designated will be deemed to be Restricted Payments at the time of the
designation and will reduce the amount available for Restricted Payments under
the "Restricted Payments" covenant. All such outstanding Investments will be
valued at their Fair Market Value at the time of such designation. That
designation will be permitted only if such Restricted Payment would be
permitted at that time and if the Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary. Any designation by the Board of
Directors shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to the designation and an
Officers' Certificate certifying that the designation complied with these
conditions and was permitted by the "Restricted Payments" covenant.

If, at any time, any Unrestricted Subsidiary would fail to meet the
requirements of the definition of an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture
and any Debt of the Subsidiary will be deemed to be incurred by a Restricted
Subsidiary of NorthPoint as of that date (and, if such Debt is not permitted to
be incurred as of that date under the covenant described under the caption "--
Incurrence of Debt", NorthPoint will be in default of such covenant).

The Board of Directors of NorthPoint may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation will be deemed to be an incurrence of Debt by a Restricted
Subsidiary of NorthPoint of any outstanding Debt of such Unrestricted
Subsidiary and such designation will be permitted only if (i) such Debt is
permitted under the covenant described under the caption "--Incurrence of
Debt", calculated on a pro forma basis as if the designation had occurred at
the beginning of the two-quarter Measurement Period, and (ii) no Default or
Event of Default would be in existence following the designation.

Reports

Whether or not required by the rules and regulations of the Commission, so
long as any Notes are outstanding, NorthPoint will furnish to the Trustee and
file (unless the Commission will not accept such a filing) with the Commission,
in each case within the time periods specified in the Commission's rules and
regulations:

(1) all quarterly and annual financial information that would be
required to be contained in filings with the Commission on Forms 10-Q and
10-K, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that describes the financial condition
and results of operations of NorthPoint and its consolidated Subsidiaries
(showing in reasonable detail, either on the face of the financial
statements or in the footnotes thereto and in "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the financial
condition and results of operations of NorthPoint and its Restricted
Subsidiaries separate from the financial condition and results of
operations of the Unrestricted Subsidiaries of NorthPoint) and, with
respect to the annual information only, a report thereon by NorthPoint's
certified independent accountants; and

(2) all current reports that would be required to be filed with the
Commission on Form 8-K.

In addition, for so long as any Notes are outstanding, NorthPoint will
furnish to the Holders of the Notes, securities analysts, prospective investors
and beneficial owners of the Notes, upon their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act,
if applicable.

Events of Default and Remedies

Each of the following is an Event of Default:

(1) default in the payment when due of interest on the Notes (including
any Additional Interest) continued for 30 days;

(2) default in the payment when due of the principal of or premium, if
any, on the Notes;

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(3) default in the payment of the purchase price pursuant to an offer to
purchase the Notes made by NorthPoint pursuant to the provisions under the
captions "--Repurchase at the Option of Holders--Change of Control" or "--
Repurchase at the Option of Holders--Asset Sales" or failure by NorthPoint
or any of its Restricted Subsidiaries to comply with the provisions under
the caption "--Certain Covenants-- Merger, Consolidation, or Sale of
Assets";

(4) failure by NorthPoint or any of its Restricted Subsidiaries for 30
days after receiving notice (from the Trustee or the Holders of at least
25% in aggregate principal amount of the Notes) to comply with any of its
other agreements in the Indenture or the Notes;

(5) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any Debt
for money borrowed by NorthPoint or any of its Restricted Subsidiaries (or
the payment of which is Guaranteed by NorthPoint or any of its Restricted
Subsidiaries), whether such Debt or Guarantee now exists or is created
after the Closing Date, if that default

(a) is caused by a failure to pay principal of such Debt at final
maturity (a "Payment Default"); or

(b) results in the acceleration of such Debt prior to its express
maturity,

and, in each case, the principal amount of any such Debt, together with
the principal amount of any other such Debt under which there has been a
Payment Default or the maturity of which has been so accelerated,
aggregates $5.0 million or more;

(6) failure by NorthPoint or any of its Restricted Subsidiaries to pay
final judgments (not covered by insurance) aggregating in excess of $5.0
million, which judgments are not paid, discharged or stayed for a period of
60 days; and

(7) certain events of bankruptcy or insolvency with respect to
NorthPoint or any of its Significant Subsidiaries.

In the case of an Event of Default arising from certain events of bankruptcy
or insolvency with respect to NorthPoint, any Significant Subsidiary or any
group of Restricted Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding Notes will become due and payable
without further action or notice. If any other Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount at maturity of the then outstanding Notes may declare all the Notes to
be due and payable immediately.

Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, including provisions
for the indemnification of the Trustee, Holders of a majority in principal
amount of the then outstanding Notes may direct the Trustee in its exercise of
any trust or power and, in particular, may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee with respect to the Notes. The
Trustee may withhold from Holders of the Notes notice of any continuing Default
or Event of Default (except a Default or Event of Default relating to the
payment of principal or interest) if it determines that withholding notice is
in their interest.

The Holders of a majority in aggregate principal amount of the Notes then
outstanding may, by notice to the Trustee on behalf of the Holders of all of
the Notes, waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the Notes.

NorthPoint is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture. Upon becoming aware of any Default or
Event of Default, NorthPoint is required to deliver to the Trustee a statement
specifying such Default or Event of Default.

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No Personal Liability of Directors, Officers, Employees and Stockholders

No director, officer, employee, incorporator or stockholder of NorthPoint,
as such, will have any liability for any obligations of NorthPoint under the
Notes or the Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder of Notes by accepting a
Note waives and releases all such liability. The waiver and release are part of
the consideration for issuance of the Notes. The waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.

Legal Defeasance and Covenant Defeasance

NorthPoint may, at its option and at any time, elect to have all of its
obligations under the Notes discharged ("Legal Defeasance") except for:

(1) the rights of Holders of outstanding Notes to receive payments in
respect of the principal of, premium, if any, and interest on the Notes
when such payments are due from the trust referred to below;

(2) NorthPoint's obligations with respect to the Notes concerning
registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payment and holding money for
security payments in trust;

(3) the rights, powers, trusts, duties and immunities of the Trustee,
and NorthPoint's obligations in connection therewith; and

(4) the Legal Defeasance provisions of the Indenture.

In addition, NorthPoint may, at its option and at any time, elect to have
the obligations of NorthPoint released with respect to certain covenants that
are described in the Indenture ("Covenant Defeasance") and thereafter any
omission to comply with such obligations will not constitute a Default or Event
of Default with respect to the Notes. If Covenant Defeasance occurs, certain
events (not including non-payment, bankruptcy, receivership, rehabilitation and
insolvency events) described under "--Events of Default and Remedies" will no
longer constitute an Event of Default with respect to the Notes.

In order to exercise either Legal Defeasance or Covenant Defeasance:

(1) NorthPoint must irrevocably deposit with the Trustee, in trust, for
the benefit of the Holders of the Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest
on the outstanding Notes on the stated maturity or on the applicable
redemption date, as the case may be, and NorthPoint must specify whether
the Notes are being defeased to maturity or to a particular redemption
date;

(2) in the case of Legal Defeasance, NorthPoint must deliver to the
Trustee an opinion of counsel in the United States confirming that (a)
NorthPoint has received from, or there has been published by, the Internal
Revenue Service a ruling or (b) since the date of the Indenture, there has
been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel will confirm
that, the holders of the outstanding Notes will not recognize income, gain
or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if
such Legal Defeasance had not occurred;

(3) in the case of Covenant Defeasance, NorthPoint must deliver to the
Trustee an opinion of counsel in the United States confirming that the
Holders of the outstanding Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such Covenant Defeasance and
will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred;

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(4) no Default or Event of Default will have occurred and be continuing
either: (a) on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit); or (b) insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 123rd day
after the date of deposit;

(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which NorthPoint or
any of its Subsidiaries is a party or by which NorthPoint or any of its
Subsidiaries is bound;

(6) NorthPoint must deliver to the Trustee an opinion of counsel to the
effect that (assuming that no Holder of any Notes would be considered an
insider of NorthPoint under applicable bankruptcy or insolvency law) after
the 123rd day following the deposit, the trust funds will not constitute a
"voidable preference" under Section 547 of the Bankruptcy Code;

(7) NorthPoint must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by NorthPoint with the intent of
preferring the Holders of Notes over any other creditors of NorthPoint or
with the intent of defeating, hindering, delaying or defrauding creditors
of NorthPoint or others; and

(8) NorthPoint must deliver to the Trustee an Officers' Certificate and
an opinion of counsel (with usual and customary exceptions reasonably
acceptable to the Trustee), each stating that all conditions precedent
provided for relating to the Legal Defeasance or the Covenant Defeasance
have been satisfied.

Satisfaction and Discharge of the Indenture

The Indenture will cease to be of further effect as to all outstanding Notes
except as to:

(1) NorthPoint's right of optional redemption;

(2) substitution of apparently mutilated, defaced, destroyed, lost or
stolen Notes;

(3) rights of Holders to receive payment of principal of and premium, if
any, and interest on the Notes;

(4) rights, obligations and immunity of the Trustee under the Indenture;
and

(5) rights of the Holders of Notes and beneficiaries of the Indenture
under which such Notes are outstanding with respect to any property
deposited with the Trustee payable to all or any of them, if:

(a) NorthPoint shall have paid or caused to be paid the principal of
and premium, if any, and interest on the Notes as and when the same will
have become due and payable; or

(b) all outstanding Notes (except lost, stolen or destroyed Notes
which have been replaced or paid) have been delivered to the Trustee for
cancellation.

Amendment, Supplement and Waiver

Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), and any existing Default or Event
of Default or compliance with any provision of the Indenture or the Notes may
be waived with the consent of the Holders of a majority in principal amount of
the then outstanding Notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes).

Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting holder):

(1) reduce the principal amount of Notes whose Holders must consent to
an amendment, supplement or waiver;

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(2) reduce the principal of or change the fixed maturity of any Note or
alter the provisions with respect to the redemption of the Notes (other
than provisions relating to the covenants described above under the caption
"--Repurchase at the Option of Holders");

(3) reduce the rate of or change the time for payment of interest on any
Note;

(4) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in
aggregate principal amount at maturity of the Notes and a waiver of the
payment default that resulted from such acceleration);

(5) make any Note payable in money other than that stated in the Notes;

(6) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive
payments of principal of or premium, if any, or interest on the Notes;

(7) waive a redemption payment with respect to any Note (other than a
payment required by one of the covenants described above under the caption
"--Repurchase at the Option of Holders"); or

(8) make any change in the preceding amendment and waiver provisions.

Notwithstanding the provisions described above, without the consent of any
Holder of Notes, NorthPoint and the Trustee may amend or supplement the
Indenture or the Notes:

(1) to cure any ambiguity, defect or inconsistency;

(2) to provide for uncertificated Notes in addition to or in place of
certificated Notes;

(3) to provide for the assumption of NorthPoint's obligations to Holders
of Notes in the case of a merger or consolidation or sale of all or
substantially all of NorthPoint's assets;

(4) to make any change that would provide any additional rights or
benefits to the Holders of Notes or that does not adversely affect the
legal rights under the Indenture of any such Holder;

(5) to comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act
or otherwise to comply with applicable law; or

(6) to provide for the issuance of additional Notes in accordance with
the limitations provided in the Indenture.

Concerning the Trustee

If the Trustee becomes a creditor of NorthPoint, the Indenture limits its
right to obtain payment of claims in certain cases, or to realize on certain
property received in respect of any such claim as security or otherwise. The
Trustee will be permitted to engage in other transactions; however, if it
acquires any conflicting interest it must eliminate such conflict within 90
days, apply to the Commission for permission to continue or resign.

The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that if an Event of Default occurs
(which is not cured or waived), the Trustee will be required, in the exercise
of its power, to use the degree of care of a prudent man in the conduct of his
own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of Notes, unless such Holder offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.

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Additional Information

Anyone who receives this registration statement may obtain a copy of the
Indenture and Registration Rights Agreement without charge by writing to
NorthPoint Communications Group, Inc., 303 Second Street, San Francisco,
California 94107, Attention: General Counsel.

Registration Rights; Additional Interest

NorthPoint and the Initial Purchasers entered into the Registration Rights
Agreement on February 8, 2000. Pursuant to the Registration Rights Agreement,
NorthPoint agreed to file with the Commission the Exchange Offer Registration
Statement on the appropriate form under the Securities Act for a registered
offer to exchange the Notes for the new notes. The registration statement of
which this prospectus forms a part constitutes such Exchange Offer
Registration Statement. Pursuant to the Exchange Offer Registration Statement
of which this prospectus forms a part, NorthPoint is offering to the Holders
of Transfer Restricted Securities who are able to make certain representations
the opportunity to exchange their Transfer Restricted Securities for new
Notes. As described above, the terms of the new notes will be substantially
identical in all material respects to the terms of the Notes (except that the
new notes will not contain terms with respect to transfer restrictions,
registration rights or payment of Additional Interest).

If:

(1) NorthPoint is not permitted to consummate the exchange offer because
the exchange offer is not permitted by applicable law or Commission policy
or existing SEC interpretations are changed such that the new notes would
not in general be fully transferable upon completion of the exchange offer;
or

(2) for any reason the exchange offer is not consummated within 210 days
after the Closing Date,

NorthPoint will file with the Commission a Shelf Registration Statement to
cover resales of the Transfer Restricted Securities by the Holders thereof who
satisfy certain conditions relating to the provision of information in
connection with the Shelf Registration Statement. NorthPoint will use its best
efforts to cause the applicable registration statement to be declared
effective as promptly as possible by the Commission on or before the 180th day
after such obligation arises.

For purposes of the preceding paragraph, "Transfer Restricted Securities"
means each Note until:

(1) the date on which such Note has been exchanged by a person other
than a broker-dealer for a new note in the exchange offer;

(2) following the exchange by a broker-dealer in the exchange offer of a
Note for a new note, the date on which such new note is sold to a purchaser
who receives from such broker-dealer on or prior to the date of such sale a
copy of the prospectus contained in the Exchange Offer Registration
Statement;

(3) the date on which such Note has been effectively registered under
the Securities Act and disposed of in accordance with the Shelf
Registration Statement; or

(4) the date on which such Note is distributed to the public pursuant to
Rule 144 under the Securities Act.

The Registration Rights Agreement provides that:

(1) NorthPoint will use its best efforts to file an Exchange Offer
Registration Statement with the Commission on or prior to May 8, 2000;

(2) NorthPoint will use its best efforts to have the Exchange Offer
Registration Statement declared effective by the Commission on or prior to
August 6, 2000;

(3) unless the exchange offer would not be permitted by applicable law
or Commission policy, NorthPoint will commence the exchange offer and use
its best efforts to issue, on or prior to 30 business

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days after the date on which the Exchange Offer Registration Statement was
declared effective by the Commission, new notes in exchange for all Notes
tendered prior thereto in the exchange offer; and

(4) if obligated to file the Shelf Registration Statement, NorthPoint
will use its best efforts to file the Shelf Registration Statement with the
Commission on or prior to 30 days after such filing obligation arises and
to cause the Shelf Registration Statement to be declared effective by the
Commission on or prior to 180 days after such obligation arises.

Additional Interest will accrue on the Notes and the new notes (in addition
to the stated interest on the Notes and the new notes) if:

(1) NorthPoint fails to file any of the Registration Statements required
by the Registration Rights Agreement on or before the date specified for
such filing;

(2) any of such Registration Statements is not declared effective by the
Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date");

(3) NorthPoint fails to consummate the exchange offer within 30 business
days of the Effectiveness Target Date with respect to the Exchange Offer
Registration Statement; or

(4) the Shelf Registration Statement or the Exchange Offer Registration
Statement is declared effective but thereafter ceases to be effective or
usable in connection with resales of Transfer Restricted Securities during
the periods specified in the Registration Rights Agreement.

Each such event referred to in clauses (1) through (4) in the preceding
sentence is a Registration Default. Additional Interest will begin accruing on
the date on which any such Registration Default shall occur, until the date on
which all Registration Defaults have been cured. Additional Interest will
accrue at a rate of 0.50% per annum during the 90-day period immediately
following the occurrence of any Registration Default and shall increase by
0.25% per annum at the beginning of each subsequent 90-day period, but in no
event shall such Additional Interest exceed 1.00% per annum. Additional
Interest will be computed on the basis of a 365-day year and will be payable in
cash, semiannually in arrears on each February 15 and August 15, regardless of
whether any such date is otherwise an Interest Payment Date. All references in
this description and in the Indenture to "interest" on the Notes and the new
notes include any Additional Interest that may become payable thereon according
to the provisions of this paragraph.

Holders of Notes will be required to make certain representations to
NorthPoint (as described in the Registration Rights Agreement) in order to
participate in the exchange offer and will be required to deliver certain
information to be used in connection with the Shelf Registration Statement and
to provide comments on the Shelf Registration Statement within the time periods
set forth in the Registration Rights Agreement in order to have their Notes
included in the Shelf Registration Statement and benefit from the provisions
regarding Additional Interest set forth above.

Certain Definitions

Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.

"Acquired Debt" means, with respect to any specified Person:

(1) Debt of any other Person existing at the time such other Person is
merged with or into or becomes a Restricted Subsidiary of such specified
Person, including, without limitation, Debt incurred in connection with, or
in contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person; and

(2) Debt secured by a Lien encumbering any asset acquired by such
specified Person.

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"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of
the Voting Stock of a Person shall be deemed to be control. For purposes of
this definition, the terms "controlling," "controlled by" and "under common
control with" shall have correlative meanings.

"Asset Sale" means:

(1) the sale, lease, conveyance or other disposition of any assets or
rights (including, without limitation, by way of a sale and leaseback)
other than sales of services, assets or rights in the ordinary course of
business (including sales of Cash Equivalents); provided that the sale,
lease, conveyance or other disposition of all or substantially all of the
assets of NorthPoint and its Restricted Subsidiaries taken as a whole will
be governed by the provisions of the Indenture described above under the
caption "--Repurchase at the Option of Holders--Change of Control" and/or
the provisions described above under the caption "--Certain Covenants--
Merger, Consolidation, or Sale of Assets" and not by the provisions of the
Asset Sale covenant; and

(2) the issue or sale by NorthPoint or any of its Subsidiaries of Equity
Interests of any of NorthPoint's Subsidiaries.

Notwithstanding the preceding, the following items shall not be deemed to be
Asset Sales:

(1) any single transaction or series of related transactions that: (a)
involves assets having a Fair Market Value (as conclusively determined in
good faith by the Board of Directors of NorthPoint) of less than $1.0
million; or (b) results in net proceeds to NorthPoint and its Subsidiaries
of less than $1.0 million;

(2) a transfer of assets by NorthPoint to a Restricted Subsidiary or by
a Restricted Subsidiary to NorthPoint or to another Restricted Subsidiary;

(3) an issuance of Equity Interests by a Restricted Subsidiary to
NorthPoint or to another Restricted Subsidiary;

(4) a Restricted Payment that is permitted by the covenant described
above under the caption "--Certain Covenants--Restricted Payments";

(5) disposals or replacements of obsolete, uneconomical, negligible,
worn-out or surplus property in the ordinary course of business; or

(6) a conveyance constituting or pursuant to a Permitted Lien.

"Attributable Debt" in respect of any Sale and Leaseback Transaction, means,
at the time of determination, the present value (discounted at a rate
consistent with accounting guidelines, as determined in good faith by
NorthPoint) of the payments during the remaining term of the lease included in
such Sale and Leaseback Transaction (including any period for which such lease
has been extended or may, at the option of the lessee, be extended) or until
the earliest date on which the lessee may terminate such lease without penalty
or upon payment of a penalty (in which case the rental payments shall be
calculated to include such penalty), after excluding all amounts required to be
paid on account of maintenance and repairs, insurance, taxes, assessments,
water, utilities and similar charges.

"Bankruptcy Code" means Title 11 of the United States Code entitled
"Bankruptcy", as now and hereafter in effect, or any successor statute.

"Beneficial Owner" has the meaning assigned to such term in Rules 13d-3 and
13d-5 under the Exchange Act (or any successor rules), including the provision
of such Rules that a Person shall be deemed to have

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beneficial ownership of all securities that such Person has a right to acquire
within 60 days; provided that a Person will not be deemed a beneficial owner
of, or to own beneficially, any securities if such beneficial ownership:

(1) arises solely as a result of a revocable proxy delivered in response
to a proxy or consent solicitation made pursuant to, and in accordance
with, the Exchange Act; and

(2) is not also then reportable on Schedule 13D or Schedule 13G (or any
successor schedule) under the Exchange Act.

"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on the balance sheet of the
lessee in accordance with GAAP.

"Capital Stock" means:

(1) in the case of a corporation, corporate stock;

(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;

(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and

(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of (other than distributions of assets in respect of Debt), the
issuing Person.

"Cash Equivalents" means, as at any date of determination:

(1) marketable securities (a) issued or directly and unconditionally
guaranteed as to interest and principal by the United States government or
(b) issued by any agency of the United States, the obligations of which are
backed by the full faith and credit of the United States, in each case
maturing within one year after such date;

(2) marketable direct obligations issued by any state of the United
States or any political subdivision of any such state or any public
instrumentality thereof, in each case maturing within one year after such
date and having, at the time of the acquisition thereof, a rating of at
least A-1 from S&P or at least P-1 from Moody's;

(3) commercial paper maturing no more than one year from the date of
creation thereof and having, at the time of the acquisition thereof, a
rating of at least A-1 from S&P or at least P-1 from Moody's;

(4) certificates of deposit, repurchase agreements, money market or
other cash management accounts, bankers acceptances and short term
Eurodollar time deposits maturing within one year after such date and
issued or accepted by any financial institution organized under the laws of
the United States or any state thereof or the District of Columbia that
either (x) has a long term deposit rating of at least A-2 from Moody's and
A from S&P or (y) (a) is at least "adequately capitalized" (as defined in
the regulations of its primary Federal banking regulator) and (b) has Tier
1 capital (as defined in such regulations) of not less than $100,000,000;

(5) floating and fixed rate obligations of major corporations, banks and
agencies, including, but not limited to, corporate bonds, medium-term
notes, deposit notes and eurodollar/yankee notes and bonds; provided (a)
all such obligations shall be rated at least A-2 or A by Moody's or S&P,
respectively; (b) no such obligation shall have a duration in excess of one
year and (c) the aggregate principal amount of all such obligations held at
any time by NorthPoint and any of its Subsidiaries shall not exceed 50% of
the aggregate principal amount of all Cash Equivalents described in clauses
(1) through (4) of this definition

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(including, with respect to Investments referred to in clause (1) and (2)
hereof, Investments in the form permitted pursuant to clause (6) of this
definition); and

(6) shares of any money market mutual fund that (a) has substantially
all of its assets invested continuously in the types of investments
referred to in clauses (1) and (2) above, (b) has net assets of not less
than $500,000,000 and (c) has the highest rating obtainable from either S&P
or Moody's.

"Change of Control" means the occurrence of any of the following:

(1) the sale, lease, transfer, conveyance or other disposition, in one
or a series of related transactions, of all or substantially all of the
assets of NorthPoint and its Restricted Subsidiaries, taken as a whole, to
any Person or group (as such term is used in Sections 13(d)(3) and 14(d)(2)
of the Exchange Act);

(2) the adoption of a plan relating to the liquidation or dissolution of
NorthPoint;

(3) the consummation of any transaction (including by way of merger,
consolidation or otherwise) the result of which is that any Person or group
(as such term is used in Sections 13(d)(3) and 14(d)(2) of the Exchange
Act) other than the Permitted Holders becomes the Beneficial Owner,
directly or indirectly, of more than 50% of the total Voting Stock or Total
Common Equity of NorthPoint; or

(4) the first day on which a majority of the members of the Board of
Directors of NorthPoint are not Continuing Directors.

"Closing Date" means February 8, 2000.

"Closing Price" on any Trading Day with respect to the per share price of
any shares of Capital Stock means the last reported sale price regular way or,
in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices regular way, in either case on the New
York Stock Exchange or, if such shares of Capital Stock are not listed or
admitted to trading on such exchange, on the principal national securities
exchange on which such shares are listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, on the
NASDAQ National Market or, if such shares are not listed or admitted to trading
on any national securities exchange or quoted on the NASDAQ National Market but
the issuer is a Foreign Issuer (as defined in Rule 3b-4(b) under the Exchange
Act) and the principal securities exchange on which such shares are listed or
admitted to trading is a Designated Offshore Securities Market (as defined in
Rule 902(b) under the Securities Act), the average of the reported closing bid
and asked prices regular way on such principal exchange, or, if such shares are
not listed or admitted to trading on any national securities exchange or quoted
on the NASDAQ National Market and the issuer and principal securities exchange
do not meet such requirements, the average of the closing bid and asked prices
in the over-the-counter market as furnished by any New York Stock Exchange
member firm selected from time to time by NorthPoint for that purpose and
reasonably acceptable to the Trustee.

"Commission" means the Securities and Exchange Commission, as from time to
time constituted.

"Common Stock" means the common stock, par value $0.001 per share, of
NorthPoint.

"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus:

(1) an amount equal to any extraordinary loss plus any net loss realized
in connection with an Asset Sale, to the extent such losses were deducted
in computing such Consolidated Net Income; plus

(2) provision for taxes based on income or profits of such Person and
its Restricted Subsidiaries for such period, to the extent that such
provision for taxes was included in computing such Consolidated Net Income;
plus

(3) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt

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issuance costs and original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net payments (if
any) pursuant to Hedging Obligations), to the extent that any such expense
was deducted in computing such Consolidated Net Income; plus

(4) depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period) and other non-cash expenses (excluding any
such non-cash expense to the extent that it represents an accrual of or
reserve for cash expenses in any future period or amortization of a prepaid
cash expense that was paid in a prior period) of such Person and its
Restricted Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income; minus

(5) non-cash items increasing such Consolidated Net Income for such
period, in each case, on a consolidated basis and determined in accordance
with GAAP.

Notwithstanding the preceding, the provision for taxes on the income or
profits of, and the depreciation and amortization and other non-cash expenses
of, a Restricted Subsidiary of the referent Person shall be added to
Consolidated Net Income to compute Consolidated Cash Flow only to the extent
that a corresponding amount would be permitted at the date of determination to
be dividended to NorthPoint by such Restricted Subsidiary without prior
governmental approval (that has not been obtained), and without direct or
indirect restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Restricted Subsidiary or its stockholders.

"Consolidated Debt" means, with respect to any Person as of any date of
determination, the sum, without duplication, of:

(1) the total amount of Debt of such Person and its Restricted
Subsidiaries; plus

(2) the total amount of Debt of any other Person, to the extent that
such Debt has been guaranteed by the referent Person or one or more of its
Restricted Subsidiaries; plus

(3) the aggregate liquidation value of all preferred stock of Restricted
Subsidiaries of such Person, in each case, determined on a consolidated
basis in accordance with GAAP.

"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that:

(1) the Net Income of any Person that is an Unrestricted Subsidiary or
that is accounted for by the equity method of accounting shall be included
only to the extent of the amount of dividends or distributions paid in cash
to the referent Person or a Restricted Subsidiary thereof;

(2) the Net Income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of
the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to such
Restricted Subsidiary or its stockholders;

(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded; and

(4) the cumulative effect of a change in accounting principles shall be
excluded.

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"Consolidated Net Worth" means with respect to any Person, the consolidated
stockholders' or partners' equity of such Person as reflected on the most
recent balance sheet of such Person, determined in accordance with GAAP, less
any amounts attributable to Disqualified Stock of such Person.

"Consolidated Tangible Net Worth" means, with respect to any Person as of
any date, Consolidated Net Worth, after deducting therefrom amounts
attributable to goodwill, trade names, patents, unamortized debt discount and
expense and any other intangibles, all as set forth on the most recent
consolidated balance sheet of such Person.

"Continuing Director" means, as of any date of determination, any member of
the Board of Directors of NorthPoint who:

(1) was a member of such Board of Directors on the Closing Date; or

(2) was nominated for election to such Board of Directors with the
affirmative vote of a majority of the Continuing Directors who were members
of such Board at the time of such nomination or election or who was elected
or appointed in the ordinary course by Continuing Directors or other
directors so elected or appointed.

"Credit Facility" means the Credit and Guaranty Agreement, dated as of
December 8, 1999 between NorthPoint, NorthPoint Communications, Inc., certain
subsidiaries of NorthPoint Communications, Inc., as listed therein, Goldman
Sachs Credit Partners L.P., as lead arranger and syndication agent and a
lender, Canadian Imperial Bank of Commerce, as administrative agent and a
lender, and various lenders listed therein, as the same may be amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part, in one or more facilities or agreements with NorthPoint and/or any of its
Subsidiaries, from time to time by the same or different lenders.

"Debt" means, with respect to any Person, any indebtedness or other
obligations of such Person, whether or not contingent:

(1) for borrowed money;

(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);

(3) in respect of banker's acceptances;

(4) representing Capital Lease Obligations;

(5) in respect of Disqualified Stock;

(6) in respect of Interest Rate, Currency or Commodity Price Agreements;
and

(7) representing the balance deferred and unpaid of the purchase price
of any property, except any such balance that constitutes an accrued
expense or trade payable, if and to the extent any of the preceding items
(other than letters of credit, Interest Rate, Currency or Commodity Price
Agreements and Disqualified Stock) would appear as a liability upon a
balance sheet of such Person prepared in accordance with GAAP. In addition,
the term "Debt" includes all Debt of others secured by a Lien on any asset
of such Person (whether or not such Debt is assumed by such Person, valued,
if not assumed, at the lesser of the Fair Market Value of the encumbered
assets or the amount of Debt so secured) and, to the extent not otherwise
included, the Guarantee by such Person of any indebtedness of any other
Person.

The amount of any Debt outstanding as of any date shall be:

(1) the accreted value thereof, in the case of any Debt issued with
original issue discount;

(2) determined in accordance with the definition thereof, in the case of
any Capital Lease Obligations;

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(3) zero, in the case of any permitted Interest Rate, Currency or
Commodity Price Agreements;

(4) in the case of any Debt secured by cash or Cash Equivalents, reduced
by the principal amount of any cash, Government Securities or Cash
Equivalents collateral securing on a perfected basis, and dedicated for
disbursement to the payment of principal of or interest on the Debt;

(5) the maximum fixed redemption or repurchase price in respect thereof,
in the case of Disqualified Stock; and

(6) the principal amount thereof, in the case of any other Debt.

In no event shall Debt include trade payables or taxes.

"Debt to Annualized Cash Flow Ratio" means, as of any date of determination,
the ratio of:

(1) the Consolidated Debt of NorthPoint as of such date to

(2) two times the Consolidated Cash Flow of NorthPoint for the two most
recent full fiscal quarters ending immediately prior to such date for which
internal financial statements are available (the "Measurement Period"),
determined on a pro forma basis after giving effect to all acquisitions or
dispositions of assets, and all incurrences and repayments of Debt, made by
NorthPoint and its Restricted Subsidiaries from the beginning of such two-
quarter period through and including such date of determination as if such
acquisitions and dispositions, and such incurrences and repayments of Debt,
had occurred at the beginning of such two-quarter period.

In addition, for purposes of calculating the Debt to Annualized Cash Flow
Ratio:

(1) acquisitions that have been made by NorthPoint or any of its
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the two-quarter
Measurement Period or subsequent to such Measurement Period and on or prior
to the date of calculation shall be deemed to have occurred on the first
day of the two-quarter Measurement Period and Consolidated Cash Flow for
such Measurement Period shall be calculated without giving effect to clause
(3) of the proviso set forth in the definition of Consolidated Net Income;
and

(2) the Consolidated Cash Flow attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded.

"Default" means any event that is, or with the passage of time or the giving
of notice or both would be, an Event of Default.

"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature. Notwithstanding the preceding sentence, any Capital
Stock that would constitute Disqualified Stock solely because the holders
thereof have the right to require NorthPoint to repurchase such Capital Stock
prior to such 91st day upon the occurrence of a "change of control" or an
"asset sale" shall not constitute Disqualified Stock if the terms of such
Capital Stock provide that NorthPoint may not repurchase or redeem any such
Capital Stock pursuant to such provisions unless such repurchase or redemption
complies with the covenant described above under the caption "--Certain
Covenants--Restricted Payments".

"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).

"Exchange Act" means the Securities Exchange Act of 1934, as amended (or any
successor act), and the rules and regulations thereunder.

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"Existing Debt" means Debt of NorthPoint and its Restricted Subsidiaries in
existence on the Closing Date.

"Fair Market Value" means with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing
buyer under no compulsion to buy. For purposes of assessing Fair Market Value,
the good faith determination by the Board of Directors or the Chief Financial
Officer of NorthPoint shall be conclusive.

"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Closing Date.

"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.

"Guarantee" means, with respect to any Person, without duplication, a
guarantee (other than by endorsement of negotiable instruments for collection
in the ordinary course of business), direct or indirect, in any manner
(including, without limitation, by way of a pledge of assets or through letters
of credit or reimbursement agreements in respect thereof), of all or any part
of any Debt of another Person.

"Guarantor" means any Subsidiary which is a guarantor of the Notes,
including any Person that is required after the date of the Indenture to
execute a guarantee of the Notes pursuant to the "Limitations on Issuance of
Guarantees of Debt" covenant until a successor replaces such party pursuant to
the applicable provisions of the Indenture and, thereafter, shall mean such
successor.

"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under any Interest Rate, Currency or Commodity Price Agreements
that are incurred for the purpose of fixing or hedging interest rate risk with
respect to any floating rate Debt that is permitted by the terms of this
Indenture to be outstanding.

"Holder" means a person in whose name a Note is registered.

"Intercompany Debt" means any Debt of NorthPoint or any Restricted
Subsidiary of NorthPoint which, in the case of NorthPoint, is owing to any
Restricted Subsidiary of NorthPoint and which, in the case of any such
Restricted Subsidiary, is owing to NorthPoint or any Restricted Subsidiary of
NorthPoint.

"Interest Rate, Currency or Commodity Price Agreement" means, with respect
to any Person, any forward contract, futures contract, swap, option or other
financial agreement or arrangement (including, without limitation, caps,
floors, collars and similar agreements) relating to, or the value of which is
dependent upon, interest rates, currency exchange rates or commodity prices or
indices (excluding contracts for the purchase or sale of goods in the ordinary
course of business).

"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including Guarantees of Debt or other obligations), advances or
capital contributions (excluding commission, travel and other advances to
officers and employees made in the ordinary course of business and excluding
accounts receivable arising in the ordinary course of business), purchases or
other acquisitions for consideration of Debt, Equity Interests or other
securities. If NorthPoint or any Restricted Subsidiary of NorthPoint sells or
otherwise disposes of any Equity Interests of any direct or indirect Restricted
Subsidiary of NorthPoint such that, after giving effect to any such sale or
disposition, such Person is no longer a Subsidiary of NorthPoint, NorthPoint
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the Fair Market Value of the Equity

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Interests of such Subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of the covenant described above under the
caption "--Certain Covenants--Restricted Payments".

"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law, including
any conditional sale or other title retention agreement and any lease in the
nature thereof.

"Measurement Period" shall have the definition set forth above under "Debt
to Annualized Cash Flow Ratio".

"Moody's" means Moody's Investors Services, Inc., and its successors.

"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however:

(1) any gain (but not loss), together with any related provision for
taxes on such gain (but not loss), realized in connection with: (a) any
Asset Sale (including, without limitation, dispositions pursuant to Sale
and Leaseback Transactions); or (b) the disposition of any securities by
such Person or any of its Restricted Subsidiaries or the extinguishment of
any Debt of such Person or any of its Restricted Subsidiaries; and

(2) any extraordinary or nonrecurring gain (but not loss), together with
any related provision for taxes on such extraordinary or nonrecurring gain
(but not loss).

"Net Cash Proceeds" means the aggregate cash proceeds received by NorthPoint
or any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale, including, without limitation, legal, accounting
and investment banking fees, and sales commissions, and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof, in
each case after taking into account (a) any available tax credits or deductions
and any tax sharing arrangements, (b) amounts required to be applied to the
repayment of Debt secured by a Lien on the asset or assets that were the
subject of such Asset Sale, (c) any reserve for adjustment in respect of the
sale price of such asset or assets established in accordance with GAAP
(including reserves for pension and other post-employment liabilities,
liabilities relating to environmental matters and liabilities under any
indemnification provisions associated with such Asset Sale, all as determined
in accordance with GAAP) and (d) with respect to Asset Sales by Restricted
Subsidiaries, the portion of such cash attributable to any Persons holding a
minority interest in such Restricted Subsidiary.

"Non-Recourse Debt" means Debt:

(1) as to which neither NorthPoint nor any of its Restricted
Subsidiaries (a) provides any undertaking, agreement or instrument that
would constitute Debt (except, with respect to an Unrestricted Subsidiary,
as a result of a pledge of the Capital Stock of such Unrestricted
Subsidiary), (b) is directly or indirectly liable as a guarantor or
otherwise, or (c) constitutes the lender;

(2) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit, upon notice, lapse of time or both, any holder of
any other Debt of NorthPoint or any of its Restricted Subsidiaries to
declare a default on such other Debt or cause the payment thereof to be
accelerated or payable prior to its stated maturity; and

(3) as to which the lenders have been notified in writing that they will
not have any recourse to the stock or assets of NorthPoint or any of its
Restricted Subsidiaries.

"Pari Passu Debt" means:

(1) any Debt of NorthPoint that is equal in right of payment to the
Notes; and

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(2) with respect to any Guarantee, Debt which ranks equal in right of
payment to such Guarantee.

"Permitted Holder" means each of (i) Michael W. Malaga, (ii) Tim Monahan,
William Euske, Nathan Gregory, Robert Flood and Steve Gorosh, as a group,
(iii) investment funds controlled by The Carlyle Group owning Capital Stock of
NorthPoint as of the Closing Date, as a group, and (iv) investment funds
controlled by Vulcan Ventures Incorporated owning Capital Stock of NorthPoint
as of the Closing Date, as a group.

"Permitted Investments" means:

(1) any Investment in NorthPoint or in any Restricted Subsidiary of
NorthPoint;

(2) any Investment in Cash Equivalents;

(3) any Investment by NorthPoint or any Restricted Subsidiary of
NorthPoint in a Person if, as a result of such Investment:

(a) such Person becomes a Restricted Subsidiary of NorthPoint; or

(b) such Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its Debt, Equity Interests
or other securities to, or is liquidated into, NorthPoint or a
Restricted Subsidiary of NorthPoint;

(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "--
Repurchase at the Option of Holders--Asset Sales";

(5) any acquisition of assets to the extent acquired in exchange for the
issuance of Equity Interests (other than Disqualified Stock) of NorthPoint;

(6) Strategic Investments; provided, however, that (i) at the time of
and after giving effect to any such Strategic Investment, no Default or
Event of Default has occurred and is continuing or would occur as a
consequence thereof, and (ii) the aggregate amount of Strategic Investments
made pursuant to this clause (6) shall not exceed the greater of $100
million and 5% of NorthPoint's Total Common Equity at any one time
outstanding;

(7) accounts receivable created or acquired in the ordinary course of
business of NorthPoint or any Restricted Subsidiary;

(8) Investments arising from transactions by NorthPoint or any
Restricted Subsidiaries with trade creditors or customers in the ordinary
course of business (including any such Investment received pursuant to any
plan of reorganization or similar arrangement pursuant to the bankruptcy or
insolvency of such trade creditors or customers or otherwise in settlement
of a claim);

(9) Hedging Obligations; and

(10) Guarantees of commitments for the purchase of goods or services
Incurred in the ordinary course of business so long as such Guarantees, to
the extent constituting Debt, are permitted to be Incurred under the
covenant described above under the caption "--Certain Covenants--Incurrence
of Debt".

"Permitted Liens" means:

(1) Liens in favor of NorthPoint, any Restricted Subsidiary of
NorthPoint or Holders of the Notes;

(2) Liens on property of a Person existing at the time such Person is
merged into or consolidated with NorthPoint or any Restricted Subsidiary of
NorthPoint; provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with
NorthPoint;

(3) Liens on property existing at the time of acquisition thereof by
NorthPoint or any Restricted Subsidiary of NorthPoint; provided that such
Liens were in existence prior to the contemplation of such acquisition;

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<PAGE>

(4) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;

(5) Liens existing on the Closing Date;

(6) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;

(7) Liens securing Purchase Money Debt permitted by the Indenture on the
property so financed together with proceeds, product, accessions,
substitutions and replacements thereof (it being understood that all Debt
owed to any single lender or group of lenders or outstanding under any
single credit facility shall be considered a single Purchase Money Debt,
whether drawn at one time or from time to time);

(8) Liens created by "notice" or "precautionary" filings in connection
with operating leases or other transactions pursuant to which no Debt or
Attributable Debt is Incurred by NorthPoint or any Restricted Subsidiary;

(9) Liens on securities constituting "margin stock" within the meaning
of Regulation T, U or X promulgated by the Board of Governors of the
Federal Reserve System, to the extent that the Investment by NorthPoint or
any Restricted Subsidiary in such margin stock is not prohibited by the
Indenture;

(10) Liens on Capital Stock of Unrestricted Subsidiaries;

(11) Liens in favor of the Trustee arising under the Indenture;

(12) Liens securing the Credit Facility permitted under clause (1) of
the covenant described above in the second paragraph under the caption "--
Certain Covenants--Incurrence of Debt";

(13) Liens securing Debt incurred to extend, renew, refinance or refund
(or successive extensions, renewals, refinancings and refundings), in whole
or in part, Debt secured by any Lien referred to in the foregoing clauses
(1) through (12) so long as such Lien does not extend to any other property
and the principal amount of Debt so secured is not increased except as
otherwise permitted under clause (1) of the definition of Permitted
Refinancing Debt.

(14) Liens securing Debt securities on cash and Cash Equivalents
representing the proceeds of such Debt securities and pledged for the
purpose of providing for the payment of principal of, and/or interest on,
such Debt securities; and

(15) zoning restrictions, servitudes, easements, rights-of-way,
restrictions and other similar charges or encumbrances incurred in the
ordinary course of business of NorthPoint or any Subsidiary of NorthPoint
that:

(a) are not incurred in connection with the borrowing of money or
the obtaining of advances or credit (other than trade credit in the
ordinary course of business); and

(b) do not in the aggregate materially detract from the value of the
property or materially impair the use thereof in the operation of
business by NorthPoint or such Restricted Subsidiary.

"Permitted Refinancing Debt" means any Debt of NorthPoint or any of its
Restricted Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund other Debt of
NorthPoint or such Restricted Subsidiary (other than Intercompany Debt);
provided that:

(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Debt does not exceed the principal amount of (or
accreted value, if applicable), plus accrued interest on, the Debt so
extended, refinanced, renewed, replaced, defeased or refunded plus the
amount of any premium required to be paid in connection with such
refinancing pursuant to the terms of the Debt so refinanced or the amount
of any premium reasonably determined by NorthPoint as necessary to
accomplish such refinancing by

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<PAGE>

means of a tender offer or privately negotiated repurchase (plus the amount
of reasonable expenses incurred in connection therewith);

(2) such Permitted Refinancing Debt has a final maturity date later than
the final maturity date of, and has a Weighted Average Life to Maturity
equal to or greater than the Weighted Average Life to Maturity of, the Debt
being extended, refinanced, renewed, replaced, defeased or refunded;

(3) if the Debt being extended, refinanced, renewed, replaced, defeased
or refunded is subordinated in right of payment to the Notes, such
Permitted Refinancing Debt has a final maturity date later than the final
maturity date of, and is subordinated in right of payment to, the Notes on
terms at least as favorable to the holders of Notes as those contained in
the documentation governing the Debt being extended, refinanced, renewed,
replaced, defeased or refunded; and

(4) such Debt is incurred either by NorthPoint or by the Restricted
Subsidiary who is the obligor on the Debt being extended, refinanced,
renewed, replaced, defeased or refunded.

"Productive Assets" means assets, including assets owned directly or
indirectly through Capital Stock of a Restricted Subsidiary, of a kind used or
usable in the Telecommunications Business of NorthPoint or its Restricted
Subsidiaries.

"Public Equity Offering" means an underwritten offering of Common Stock with
gross proceeds to NorthPoint of at least $35.0 million pursuant to a
registration statement that has been declared effective by the Commission
pursuant to the Securities Act (other than a registration statement on Form S-8
or otherwise relating to equity securities issuable under any employee benefit
plan of NorthPoint).

"Purchase Money Debt" means Debt of NorthPoint or any Restricted Subsidiary
of NorthPoint (including Acquired Debt and Debt represented by Capital Lease
Obligations, mortgage financings and purchase money obligations), including any
related notes, Guarantees, collateral documents, instruments and agreements
executed in connection therewith, as the same may be amended, supplemented,
modified or restated from time to time incurred for the purpose of financing
all or any part of the cost of maintenance, development, construction,
acquisition, enhancement or improvement by NorthPoint or any Restricted
Subsidiary of NorthPoint of (a) any Productive Assets of NorthPoint or any
Restricted Subsidiary of NorthPoint or (b) any Telecommunications Related
Assets.

"Restricted Investment" means an Investment other than a Permitted
Investment.

"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary. If no referent Person is
identified, the term "Restricted Subsidiaries" shall be deemed to refer to
Restricted Subsidiaries of NorthPoint.

"S&P" means Standard & Poor's Ratings Group, a division of The McGraw-Hill
Companies, and its successors.

"Sale and Leaseback Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which any property (other than
Capital Stock) is sold by such Person or a Subsidiary, or, in the case of
NorthPoint, a Restricted Subsidiary of such Person and is thereafter leased
back from the purchaser or transferee thereof by such Person or one of its
Subsidiaries or, in the case of NorthPoint, one of its Restricted Subsidiaries.

"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the Closing Date.

"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Debt, the date on which such payment of interest or
principal was scheduled to be paid in the original documentation

117
<PAGE>

governing such Debt, and shall not include any contingent obligations to repay,
redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.

"Strategic Equity Placement" means an equity investment made by a Strategic
Investor in NorthPoint in an aggregate amount of not less than $25 million.

"Strategic Investment" means an Investment in any Person primarily engaged
in a Telecommunications Business, provided that such Investment is determined
by the Board of Directors of NorthPoint to promote or significantly benefit the
businesses of NorthPoint and its Restricted Subsidiaries as conducted on the
date of such Investment.

"Strategic Investor" means a corporation, partnership or other entity
engaged directly or indirectly in the Telecommunications Business that has, or
80% or more of the voting stock of which is owned by a Person that has, an
equity market capitalization, at the time of its initial investment in
NorthPoint, in excess of $1 billion.

"Subordinated Debt" means Debt of NorthPoint or a Guarantor subordinated in
right of payment to the Notes or the Guarantee of such Guarantor, as the case
may be.

"Subsidiary" means, with respect to any Person:

(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person (or a combination thereof); and

(2) any partnership, limited liability company or similar pass-through
entity, (a) the sole general partner or the managing general partner or
managing member of which is such Person or a Subsidiary of such Person or
(b) the only general partners, managing members, or Persons, however
designated in corresponding roles, of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof).

"Telecommunications Business" means, when used in reference to any Person,
that such Person is engaged primarily in the business of transmitting, or
providing services relating to the transmission of, voice or data through
leased transmission facilities (including facilities such as fiber, copper and
switches), and any business related, ancillary or complementary thereto (as
conclusively determined in good faith by the Board of Directors).

"Telecommunications Related Assets" means all assets, rights (contractual or
otherwise) and properties, whether tangible or intangible, real or personal,
used or to be used, in connection with a Telecommunications Business.

"Total Common Equity" of any Person means, as of any date of determination
the product of:

(1) the aggregate number of outstanding primary shares of common stock
of such Person on such day (which shall not include any options or warrants
on, or securities convertible or exchangeable into, shares of common stock
of such Person); and

(2) the average Closing Price of such Common Stock over the 20
consecutive Trading Days immediately preceding such day.

If no such Closing Price exists with respect to shares of any such class,
the value of such shares for purposes of clause (2) of the preceding sentence
shall be determined by the Board of Directors of NorthPoint in good faith and
evidenced by a resolution of the Board of Directors filed with the Trustee.

"Trading Day", with respect to a securities exchange or automated quotation
system, means a day on which such exchange or system is open for a full day of
trading.

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"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution, but only to the extent that such Subsidiary:

(1) has no Debt other than Non-Recourse Debt;

(2) is not party to any agreement, contract, arrangement or
understanding with NorthPoint or any Restricted Subsidiary of NorthPoint
unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to NorthPoint or such Restricted
Subsidiary than those that might be obtained at the time from Persons who
are not Affiliates of NorthPoint, unless such agreement, contract,
arrangement or understanding constitutes a Restricted Payment permitted by
the Indenture;

(3) is a Person with respect to which neither NorthPoint nor any of its
Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results; and

(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Debt of NorthPoint or any of its Restricted
Subsidiaries.

"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or Persons
performing similar functions) of such Person, whether at all times or only so
long as no senior class of securities has such voting power by reason of any
contingency.

"Weighted Average Life to Maturity" means, when applied to any Debt at any
date, the number of years obtained by dividing:

(1) the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest one-
twelfth) that will elapse between such date and the making of such payment;
by

(2) the then outstanding principal amount of such Debt.

"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.

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<PAGE>

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

The following is a general discussion of United States federal income tax
considerations of the purchase, ownership and sale of the notes and of the
exchange of old notes for new notes pursuant to the exchange offer. It only
applies to beneficial owners of notes who purchase their notes at the issue
price, and is not a complete analysis of all potential tax effects. The
discussion is based on the tax law as it exists today although it could change
at any time, and any change could be applied retroactively in a manner that
could adversely affect a beneficial owner of the notes. This discussion does
not address the special rules applicable to beneficial owners such as insurance
companies and other financial institutions, dealers in securities, tax-exempt
organizations, traders in securities that elect to mark to market, persons
whose functional currency is not the U.S. dollar, and persons holding the notes
as part of a "straddle," "hedge" or "conversion transaction," and it deals only
with notes held as "capital assets" within the meaning of Section 1221 of the
Internal Revenue Code of 1986, as amended ("Code").

Prospective purchasers of notes should consult their own tax advisors with
regard to the application of the tax considerations discussed below to their
particular situations as well as the application of any state, local, foreign
or other tax laws, including gift and estate tax laws.

For purposes of this discussion, a U.S. holder is any of the following
beneficial owners of a note:

. citizens and residents of the United States for U.S. federal income tax
purposes;

. corporations, partnerships, and other entities created or organized in
or under the laws of the United States or any political subdivision
thereof;

. estates, if the income of the estate is subject to U.S. federal income
taxation regardless of its sources, and trusts, if a U.S. court can
exercise primary supervision over the administration of the trust and
one or more U.S. persons have the authority to control all substantial
decisions of the trust; and

. other persons whose worldwide income or gain is otherwise subject to
U.S. federal income taxation on a net income basis.

A non-U.S. holder is any beneficial owner of a note that is not a U.S person
for U.S. federal income tax purposes.

Consequences to U.S. Holders

Interest on Notes

Cash basis taxpayers, including most individuals, will recognize ordinary
interest income when they receive interest payments on the notes. Accrual basis
taxpayers will recognize ordinary interest income as interest on the notes
accrues.

Sale, Exchange and Retirement of Notes

A U.S. holder will recognize gain or loss upon the sale, retirement or other
taxable disposition of a note. Such gain or loss will generally equal the
difference between the amount of cash and the fair market value of any property
received for the note (other than amounts representing accrued but unpaid
interest) and the U.S. holder's purchase price. A U.S. holder should not
recognize gain or loss upon the exchange of an old note for a new note pursuant
to the exchange offer.

Gain or loss generally will be capital gain or loss and will be long-term
capital gain or loss if the holder has held such note for more than one year.
There are limits on the deductibility of capital losses. Any amounts paid with
respects to accrued but unpaid interest generally will be taxable as ordinary
interest income.

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Consequences to Non-U.S. Holders

Interest on Notes

Generally, interest paid on the notes to a non-U.S. holder will not be
subject to U.S. federal income or withholding tax if:

. the interest is not effectively connected with the conduct of a trade or
business within the U.S. by the non-U.S. holder;

. the non-U.S. holder does not actually or constructively own 10% or more
of the total voting power of all classes of NorthPoint stock entitled to
vote and is not a controlled foreign corporation with respect to which
NorthPoint is a "related person" within the meaning of the Code; and

. the beneficial owner of the note, under penalty of perjury, properly
certifies that it is not a U.S. person.

The certification described in the last clause above may be provided by a
securities clearing organization, a bank or other financial institution that
holds customers' securities in the ordinary course of its trade or business and
holds the notes and certifies under penalty of perjury that it has received a
similar statement from the non-U.S. holder or from a similar financial
institution between the non-U.S. holder and it, and has furnished the payor
with a copy. Under new U.S. Treasury regulations, which generally are effective
for payments made after December 31, 2000, the certification may also be
provided:

. directly by the non-U.S. holder;

. in the case of a non-U.S. holder that is treated as a partnership or
other fiscally transparent entity, by the partners, shareholders or
other beneficiaries of the entity; or

. qualified financial institutions or other qualified entities on behalf
of the non-U.S. holder.

A non-U.S. holder that is not exempt from tax under these rules will be
subject to U.S. federal income tax withholding at a rate of 30% unless the
interest is effectively connected with the conduct of a U.S. trade or business,
in which case the interest will be subject to the U.S. federal income tax on
net income that applies to U.S. persons generally. Corporate non-U.S. holders
that receive interest income that is effectively connected with the conduct of
a trade or business within the U.S. may also be subject to an additional
"branch profits" tax on such income. Non-U.S. holders should consult applicable
income tax treaties, which may provide different rules.

Sale, Exchange and Retirement of Notes

A non-U.S. holder generally will not be subject to U.S. federal income tax
on gain recognized upon the sale or other disposition of the notes unless:

. the gain is, or is treated as, effectively connected with the conduct of
a trade or business within the U.S. by the non-U.S. holder; or

. in the case of a non-U.S. holder who is a nonresident alien individual
and holds the notes as a capital asset, the holder is present in the
U.S. for 183 or more days in the taxable year.

A non-U.S. holder should not recognize gain or loss upon the exchange of an
old note for a new note pursuant to the exchange offer.

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Federal Estate Taxes

A note beneficially owned by an individual who is a non-U.S. holder at the
time of his or her death generally will not be subject to U.S. federal estate
tax as a result of the individual's death, provided that:

. the individual does not actually or constructively own 10% or more of
the total combined voting power of all classes of NorthPoint stock
entitled to vote within the meaning of Section 871(h)(3) of the Code;
and

. interest payments with respect to such note would not have been, if
received at the time of the individual's death, effectively connected
with the conduct of a U.S. trade or business by the individual.

Information Reporting and Backup Withholding

U.S. Holders

Information reporting and backup withholding may apply to payments of
principal or interest, or the proceeds of the sale or other disposition of the
notes, made by NorthPoint or another payor with respect to U.S holders. These
holders generally will be subject to backup withholding at a rate of 31% unless
the recipient of the payment supplies a taxpayer identification number and
other information, certified under penalties of perjury, or otherwise
establishes, in the manner prescribed by law, an exemption form backup
withholding. Any amount withheld under backup withholding is allowable as a
credit against the U.S. holder's federal income tax, upon furnishing the
required information to the Internal Revenue Service.

Non-U.S. Holders

Generally, information reporting and backup withholding of U.S. federal
income tax at a rate of 31% may apply to payments of principal or interest to a
non-U.S. holder if the holder fails to provide the certification described
above under "--Consequences to Non-U.S. Holders--Interest on Notes", or the
payor has actual knowledge that the holder is a U.S. holder that has not
provided the appropriate certification as described above.

The payment of the proceeds on the disposition of notes to or through the
U.S. office of a U.S. or foreign broker will be subject to information
reporting and backup withholding unless the owner provides the certification
described above or otherwise establishes an exemption. The proceeds of the
disposition by a non-U.S. holder of notes to or through a foreign office of a
broker will not be subject to backup withholding. However, if the broker is a
U.S person, a controlled foreign corporation for U.S. tax purposes, or a
foreign person 50% or more of whose gross income from all sources is from
activities that are effectively connected with a U.S. trade or business or,
after December 31, 2000, a foreign partnership, if at any time during its tax
year, (1) one or more of its partners are U.S. persons that also, in the
aggregate, hold more than 50% of the income or capital interest in the
partnership or (2) it is engaged in the conduct of a trade or business in the
United States, information reporting will apply unless:

. the broker has documentary evidence in its files of the owner's foreign
status; or

. the owner otherwise establishes an exemption.

Both backup withholding and information reporting will apply to the proceeds
from dispositions if the broker has actual knowledge that the holder is a U.S.
holder that has not provided the appropriate certification as described above.

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PLAN OF DISTRIBUTION

Each broker-dealer that receives new notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of the new notes. Broker-dealers may use this
prospectus, as it may be amended or supplemented from time to time, in
connection with the resale of new notes received in exchange for old notes
where the broker-dealer acquired the old notes as a result of market-making
activities or other trading activities. We have agreed that for a period of up
to one year after the expiration date, we will make this prospectus, as amended
or supplemented, available to any broker-dealer that requests it in the letter
of transmittal for use in connection with any such resale.

We will not receive any proceeds from any sale of new notes by broker-
dealers or any other persons. Broker-dealers may sell new notes received by
broker-dealers for their own account pursuant to the exchange offer from time
to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the new notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to the prevailing market prices or negotiated
prices. Broker-dealers may resell new notes directly to purchasers or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any broker-dealer and/or the purchasers of the
new notes. Any broker-dealer that resells new notes that were received by it
for its own account pursuant to the exchange offer and any broker or dealer
that participates in a distribution of the new notes may be deemed to be
"underwriters" within the meaning of the Securities Act and any profit on any
resale of new notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The letter of transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.

We have agreed to pay all expenses incident to our performance of, or
compliance with, the registration rights agreement and will indemnify you
(including any broker-dealers), and certain parties related to you, against
certain liabilities, including liabilities under the Securities Act.

By its acceptance of the exchange offer, any broker-dealer that receives new
notes pursuant to the exchange offer agrees to notify us before using the
prospectus in connection with the sale or transfer of new notes. The broker-
dealer further acknowledges and agrees that, upon receipt of notice from us of
the happening of any event which makes any statement in the prospectus untrue
in any material respect or which requires the making of any changes in the
prospectus to make the statements in the prospectus not misleading or which may
impose upon us disclosure obligations that my have a material adverse effect on
us (which notice we agree to deliver promptly to the broker-dealer), the
broker-dealer will suspend use of the prospectus until we have notified the
broker-dealer that delivery of the prospectus may resume and have furnished
copies of any amendment or supplement to the prospectus to the broker-dealer.

LEGAL MATTERS

Willkie Farr & Gallagher, New York, New York, will pass upon certain legal
matters for us. Certain attorneys of Willkie Farr & Gallagher hold shares of
our common stock. These shares represent less than 0.1% of our common stock.

EXPERTS

The financial statements of NorthPoint Communications Group, Inc. as of
December 31, 1999 and 1998 and for the two years in the period ended December
31, 1999 and for the period from May 16, 1997 (date of inception) to December
31, 1997, included in this registration statement have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of that firm as experts in accounting and auditing.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

NorthPoint Communications Group, Inc.

The following consolidated financial statements include separate
consolidated financial statements of NorthPoint Communications Group, Inc. as
of December 31, 1999. In March 1999, NorthPoint Communications, Inc. merged
with and into NorthPoint Merger Sub, Inc., a wholly owned subsidiary of
NorthPoint Communications Group, Inc. The following consolidated financial
statements as of December 31, 1998 do not include separate consolidated
financial statements of NorthPoint Communications Group, Inc. as management has
determined that the consolidation of NorthPoint Communications Group, Inc.
would not be material to investors. This determination is based on the fact
that, as of December 31, 1998, on a consolidated basis, (i) NorthPoint
Communications Group, Inc. had not commenced operations, (ii) NorthPoint
Communications Group, Inc. had no significant assets, liabilities, contingent
liabilities or commitments, and (iii) the merger of NorthPoint Communications,
Inc., with and into NorthPoint Merger Sub, Inc., a wholly owned subsidiary of
NorthPoint Communications Group, Inc., was a reorganization under common
control.

NorthPoint Communications Group, Inc.

<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants........................................ F-2

Consolidated Balance Sheets as of December 31, 1999 and 1998............. F-3

Consolidated Statements of Operations for the years ended December 31,
1999 and 1998 and for the period from May 16, 1997 (date of inception)
through December 31, 1997............................................... F-4

Consolidated Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 1999 and 1998 and for the period from May 16, 1997
(date of inception) through December 31, 1997........................... F-5

Consolidated Statements of Cash Flows for the years ended December 31,
1999 and 1998 and for the period from May 16, 1997 (date of inception)
through December 31, 1997............................................... F-6

Notes to Consolidated Financial Statements............................... F-7
</TABLE>

The financial statements of NorthPoint Communications, Inc. have been
included because they would represent virtually all of the operations, assets
and liabilities of NorthPoint Communications Group, Inc., had the merger been
completed as of December 31, 1998.

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of NorthPoint Communications Group,
Inc.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of stockholders' equity (deficit) and of
cash flows present fairly, in all material respects, the financial position of
NorthPoint Communications Group, Inc. and subsidiaries (the Company) as of
December 31, 1999 and 1998, and the results of their operations and their cash
flows for the three years ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. These
consolidated financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP

San Francisco, California
March 6, 2000

F-2
<PAGE>

NORTHPOINT COMMUNICATIONS GROUP, INC.

CONSOLIDATED BALANCE SHEETS
(Amounts in 000's, except share and per share amounts)

<TABLE>
<CAPTION>
December 31,
-------------------
1999 1998
--------- --------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents............................... $ 95,019 $ 10,956
Short-term investments.................................. 115,034 --
Accounts receivable, net of an allowance of $834 and
$19, respectively...................................... 10,558 523
Inventories............................................. 4,439 --
Prepaid expenses and other assets....................... 19,555 2,649
--------- --------
Total current assets.................................. 244,605 14,128
Property and equipment, net............................... 227,124 46,078
Long-term investment...................................... 6,740 --
Deposits.................................................. 691 296
--------- --------
Total assets.......................................... $ 479,160 $ 60,502
========= ========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable, including related party payables of
$6,161 and $5,189, respectively........................ $ 56,004 $ 9,379
Accrued expenses........................................ 25,675 5,481
Deferred revenue........................................ -- 189
Deferred short-term credits............................. 348 --
Capital lease obligations, current portion, net of
unamortized debt discount of $265 and $265,
respectively........................................... 1,027 925
Line of credit borrowings, net of unamortized debt
discount of $0 and $2,303, respectively................ -- 48,422
--------- --------
Total current liabilities............................. 83,054 64,396
--------- --------
Capital lease obligations, long term portion, net of
unamortized debt discount of $332 and $598,
respectively............................................. 1,653 2,640
Deferred long-term credits................................ 1,392 --
Term loan................................................. 85,000 --
--------- --------
Total liabilities..................................... 171,099 67,036
--------- --------
Commitments and contingencies (Note 6).
Stockholders' equity (deficit):
Convertible preferred stock, $0.001 par value,
101,250,000 and 49,060,250 shares authorized at
December 31, 1999 and 1998, respectively; 38,499,054
shares issued and outstanding at December 31, 1998;
liquidation preference of $15,493 at December 31,
1998................................................... -- 38
Common stock, $0.001 par value, 281,250,000 and
112,500,000 shares authorized at December 31, 1999 and
1998, respectively; 126,469,210 (including 2,466,724
shares of Class B common stock) and 24,592,950 shares
issued and outstanding at December 31, 1999 and 1998,
respectively........................................... 126 25
Warrants.................................................. 8,701 5,232
Additional paid-in capital................................ 525,294 31,480
Deferred stock compensation............................... (12,405) (13,022)
Accumulated other comprehensive income.................... 330 --
Accumulated deficit....................................... (213,985) (30,287)
--------- --------
Total stockholders' equity (deficit).................. 308,061 (6,534)
--------- --------
Total liabilities and stockholders' equity (deficit).. $ 479,160 $ 60,502
========= ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-3
<PAGE>

NORTHPOINT COMMUNICATIONS GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in 000's, except share and per share amounts)

<TABLE>
<CAPTION>
Years Ended December May 16, 1997
31, (date of inception)
------------------------ to December 31,
1999 1998 1997
----------- ----------- -------------------
<S> <C> <C> <C>
Revenues......................... $ 21,140 $ 931 $ --
Operating expenses:
Network expenses............... 50,354 3,970 55
Selling, general and
administrative (excludes
amortization of deferred stock
compensation of $5,406,
$2,664, and $174,
respectively)................. 117,899 18,340 1,374
Amortization of deferred stock
compensation.................. 5,406 2,664 174
Depreciation and amortization.. 15,907 1,319 27
----------- ----------- -----------
Total operating expenses..... 189,566 26,293 1,630
----------- ----------- -----------
Loss from operations......... (168,426) (25,362) (1,630)
----------- ----------- -----------
Interest income.................. 12,310 209 190
Interest expense................. (27,582) (3,694) --
----------- ----------- -----------
Net loss..................... $ (183,698) $ (28,847) $ (1,440)
=========== =========== ===========
Net loss per common share
attributable to common
stockholders--basic and
diluted......................... $ (2.02) $ (1.18) $ (.07)
=========== =========== ===========
Weighted average shares used in
computing net loss per
common share--basic and
diluted......................... 90,764,996 24,379,445 21,733,560
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-4
<PAGE>

NORTHPOINT COMMUNICATIONS GROUP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(Amounts in 000's)

<TABLE>
<CAPTION>
Convertible
Preferred Accumulated Total
Stock Common Stock Additional Deferred Other Stockholders
--------------- -------------- Paid-in Stock Accumulated Comprehensive Equity
Shares Amount Shares Amount Warrants Capital Compensation Deficit Income (Deficit)
------- ------ ------- ------ -------- ---------- ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
inception (May
16, 1997)........ -- $-- -- $-- $ -- $ -- $ -- $ -- $-- $ --
Issuance of
common stock.... 22,700 23 77 100
Issuance of
preferred stock
Series A........ 13,095 13 569 582
Conversion of
preferred stock
Series A into
preferred stock
Series B........ (11,153) -- --
Issuance of
preferred stock
Series B........ 35,072 24 10,485 10,509
Issuance of
common stock.... 1,645 2 49 51
Deferred stock
compensation.... 1,204 (1,204) --
Amortization of
deferred stock
compensation.... 174 174
Net loss........ (1,440) (1,440)
------- ---- ------- ---- ------- -------- -------- --------- ---- ---------
Balances at
December 31,
1997............. 37,014 37 24,345 25 -- 12,384 (1,030) (1,440) -- 9,976
Issuance of
common stock.... 248 -- 39 39
Issuance of
preferred stock
Series C........ 1,485 1 4,401 4,402
Issuance of
common and
preferred stock
warrants........ 5,232 5,232
Deferred stock
compensation.... 14,656 (14,656) --
Amortization of
deferred stock
compensation.... 2,664 2,664
Net loss........ (28,847) (28,847)
------- ---- ------- ---- ------- -------- -------- --------- ---- ---------
Balances at
December 31,
1998............. 38,499 38 24,593 25 5,232 31,480 (13,022) (30,287) -- (6,534)
Issuance of
preferred stock
Series C........ 39,036 39 56,868 56,907
Issuance of
preferred stock
Series D........ 3,968 4 38,797 38,801
Issuance of
common stock for
cash in initial
public offering,
net of offering
expenses of
$27,559......... 17,250 17 386,424 386,441
Conversion of
preferred stock
to common stock
in conjunction
with initial
public
offering........ (81,503) (81) 79,691 79 2 --
Issuance of
common stock.... 3,719 4 2,893 2,897
Issuance of
common stock
from conversion
of note
payable......... 311 -- 5,600 5,600
Issuance of
common stock
from exercise of
stock warrants.. 905 1 (1,061) 1,060 --
Issuance of
common stock
warrants........ 1,911 1,911
Issuance of
common stock
warrants
(Microsoft
Corporation).... 2,619 (2,619) --
Deferred stock
compensation
(net of
cancellations).. 4,789 (4,789) --
Amortization of
deferred stock
compensation.... 5,406 5,406
Other
comprehensive
income.......... 330 330
Net loss........ (183,698) (183,698)
------- ---- ------- ---- ------- -------- -------- --------- ---- ---------
Balances at
December 31,
1999............. -- $-- 126,469 $126 $ 8,701 $525,294 $(12,405) $(213,985) $330 $ 308,061
======= ==== ======= ==== ======= ======== ======== ========= ==== =========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-5
<PAGE>

NORTHPOINT COMMUNICATIONS GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in 000's)

<TABLE>
<CAPTION>
Years Ended May 16, 1997
December 31, (date of inception)
------------------- to December 31,
1999 1998 1997
--------- -------- -------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................ $(183,698) $(28,847) $(1,440)
Adjustments to reconcile net loss to
net cash used by operating
activities:
Depreciation and amortization..... 15,907 1,319 27
Amortization of deferred stock
compensation..................... 5,406 2,664 174
Amortization of debt discount..... 4,480 2,066 --
Changes in assets and liabilities:
Accounts receivable............... (10,035) (523) --
Inventories....................... (4,439) -- --
Prepaid expenses and other
assets........................... (16,906) (2,590) (59)
Deposits.......................... (395) (223) (73)
Accounts payable.................. 46,625 9,101 --
Accrued expenses.................. 20,194 5,481 277
Deferred revenue.................. (189) 189 --
--------- -------- -------
Net cash used by operating
activities..................... (123,050) (11,363) (1,094)
--------- -------- -------
Cash flows from investing activities:
Purchase of short-term investments.. (114,704) -- --
Purchase of long-term investments... (5,000) -- --
Purchase of property and equipment.. (196,817) (41,550) (701)
--------- -------- -------
Net cash used by investing
activities..................... (316,521) (41,550) (701)
--------- -------- -------
Cash flows from financing activities:
Net proceeds from issuance of common
and preferred stock................ 485,046 4,441 11,242
Payments on credit facilities....... (50,725) -- --
Borrowings from credit facilities... 85,000 50,724 1
Proceeds from note payable.......... 5,600 -- --
Principal payments on capital lease
obligations........................ (1,287) (744) --
--------- -------- -------
Net cash provided by financing
activities..................... 523,634 54,421 11,243
--------- -------- -------
Net increase in cash and cash
equivalents.......................... 84,063 1,508 9,448
Cash and cash equivalents at beginning
of period............................ 10,956 9,448 --
--------- -------- -------
Cash and cash equivalents at end of
period............................... $ 95,019 $ 10,956 $ 9,448
========= ======== =======
Supplemental cash flow information and
noncash activities:
Fixed assets obtained through
capital lease...................... $ 136 $ 4,085 $ 1,102
Warrants issued for bridge loan,
capital lease and with issuance of
equity (Microsoft investment)...... $ 4,530 $ 5,232 $ --
Warrants received in connection with
investment ........................ $ 1,740 $ -- $ --
Conversion of convertible promissory
note to Class B common stock....... $ 5,600 $ -- $ --
Income taxes paid................... $ 24 $ 1 $ 1
Interest paid....................... $ 23,297 $ 992 $ --
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-6
<PAGE>

NORTHPOINT COMMUNICATIONS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Basis of Presentation

The Company

NorthPoint Communications, Inc. was formed in May 1997 to provide high speed
network and data transport services, allowing Internet Service Providers
(ISPs), broadband data service providers and long distance and local phone
companies (collectively, network service providers or NSPs) to meet the rapidly
increasing information needs of small and medium-sized businesses, people who
work in home offices and telecommuters.

Basis of Presentation

The consolidated financial statements include the accounts of NorthPoint
Communications 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.

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

Use of estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Reclassifications

Certain prior year balances have been reclassified to conform with the
current year presentation.

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 years
ended December 31, 1999 and 1998, two NSP customers accounted for 32% and 70%
of revenue, respectively. These same customers accounted for 33% and 55% of
accounts receivable at December 31, 1999 and 1998, respectively.

The Company is dependent upon a small number of major suppliers and service
providers.

F-7
<PAGE>

NORTHPOINT COMMUNICATIONS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Cash and cash equivalents

The Company considers all highly liquid monetary instruments with an
original maturity of three months or less at the date of purchase to be cash
equivalents.

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 December 31, 1999 and 1998 was $4,365,400 and
$375,000, 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 $330,414 as of December 31, 1999 related to the net
unrealized gains 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.

Central office collocation space improvements represent payments to
compensate carriers for infrastructure improvements within their central
offices to allow the Company to install its equipment, which allows the Company
to interconnect with the carrier's network. These payments are capitalized and
are amortized over their estimated useful lives of five years.

The Company capitalizes costs associated with the design and implementation
of the Company's network including internally and externally developed software
in accordance with SOP 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. Capitalized external software costs
include the actual costs to purchase existing software from vendors.
Capitalized internal software costs generally include personnel costs incurred
in the enhancement and implementation of purchased software packages. As of
December 31, 1999, 1998 and 1997, no internal costs have been capitalized.

Long-lived assets

Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
requires that long-lived assets and certain intangible assets

F-8
<PAGE>

NORTHPOINT COMMUNICATIONS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. If undiscounted expected
future cash flows are less than the carrying value of the assets, an impairment
loss is to be recognized based on the fair value of the assets. No impairment
losses have been recognized to date.

Revenues

Revenues from transport services are recognized when the services are
provided. Payments received in advance of providing services are recorded as
deferred revenue until the period such services are provided. Revenues related
to installation services are recognized when the installation is completed. To
date, such installation service revenues approximate the related costs.

Advertising and sales promotion costs

Advertising and sales promotion costs are expensed as incurred and totaled
$2,012,221 and $281,539 in 1999 and 1998, respectively. There were no
advertising and sales promotion costs in 1997.

Income taxes

The Company accounts for income taxes using the liability method in
accordance with Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts
expected to be realized.

Fair value of financial instruments

Amounts reported for cash and cash equivalents, accounts receivable,
accounts payable, line of credit borrowings, and other accrued expenses are
considered to approximate fair value, primarily due to their short maturities.
Based on borrowing rates currently available to the Company for loans with
similar terms, the carrying value of the capital lease obligations approximates
fair value.

Earnings (loss) per share

The Company computes net loss per share pursuant to 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.

F-9
<PAGE>

NORTHPOINT COMMUNICATIONS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following table presents the calculation of basic and diluted net loss
per share and pro forma basic and diluted net loss per share for the periods
indicated:

<TABLE>
<CAPTION>
May 16, 1997
For the years ended (date of
December 31, Inception) to
------------------------- December 31,
1999 1998 1997
------------ ----------- -------------
<S> <C> <C> <C>
Net loss.............................. $183,698,217 $28,846,706 $ 1,440,269
============ =========== ===========
Basic and diluted:
Weighted average shares of common
stock outstanding................... 90,781,871 24,419,328 21,733,560
Less weighted average shares subject
to repurchase....................... 16,875 39,883 --
------------ ----------- -----------
Weighted average shares used in
computing basic and diluted net loss
per share........................... 90,764,996 24,379,445 21,733,560
------------ ----------- ===========
Weighted average effect of pro forma
conversion of preferred stock....... 27,291,384 38,499,054
------------ -----------
Weighted average shares used in
computing pro forma basic and
diluted net loss per share.......... 118,056,380 62,878,499
============ ===========
Net loss per share:
Basic and diluted.................... $ (2.02) $ (1.18) $ (0.07)
============ =========== ===========
Pro forma basic and diluted.......... $ (1.56) $ (0.46)
============ ===========
</TABLE>

The dilutive effect of options and warrants has not been considered as their
effect would be antidilutive for all periods presented.

Stock-based compensation

The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion No. 25
(APB No. 25), Accounting for Stock Issued to Employees, and complies with the
disclosure provisions of Statement of Financial Accounting Standards No. 123
(SFAS No. 123), Accounting for Stock-Based Compensation. Under APB No. 25,
compensation expense is based on the difference, if any, on the date of the
grant, between the fair value of the Company's stock and the exercise price of
the option. The Company accounts for equity instruments issued to nonemployees
in accordance with the provisions of SFAS No. 123 and Emerging Issues Task
Force 96-18. The Company amortizes stock-based compensation recorded in
connection with certain stock options over the vesting period of the related
options.

Comprehensive income

The Company has adopted the accounting treatment prescribed by Statement of
Financial Accounting Standards No. 130, Comprehensive Income. Comprehensive
income, as defined, includes all changes in equity (net assets) during a period
from non-owner sources.

Segment information

In 1998, the Company adopted Statement of Financial Accounting Standards No.
131 (SFAS No. 131), Disclosures about Segments of an Enterprise and Related
Information. SFAS No. 131 uses the "management" approach for identifying
reportable segments. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments. The
Company operates in one segment: High speed network and data transport services
solely in the United States.

F-10
<PAGE>

NORTHPOINT COMMUNICATIONS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Recently issued accounting pronouncements

3. Property and Equipment

Property and equipment consist of the following:

<TABLE>
<CAPTION>
December 31,
-------------------------
1999 1998
------------ -----------
<S> <C> <C>
Networking equipment.......................... $114,304,244 $22,856,460
Central office collocation space
improvements................................. 60,744,143 14,706,047
Computers and software........................ 40,739,441 2,488,542
Leasehold improvements........................ 14,053,822 1,244,924
Furniture, fixtures and equipment............. 9,204,600 938,877
Property and equipment under capital leases:
Networking equipment........................ 3,320,894 3,184,894
Central office collocation space
improvements............................... 892,537 892,537
Furniture, fixtures and equipment........... 987,888 987,888
Leasehold improvements...................... 121,670 121,670
------------ -----------
Total property and equipment.............. 244,369,239 47,421,839
Less accumulated depreciation and
amortization................................. (17,245,739) (1,344,043)
------------ -----------
Property and equipment, net................... $227,123,500 $46,077,796
============ ===========
</TABLE>

Included in accumulated depreciation and amortization is $1,608,557 and
$630,121 of accumulated depreciation and amortization relating to property and
equipment under capital leases as of December 31, 1999 and 1998.

Depreciation and amortization expense was $15,906,502 and $1,318,575 for the
years ended December 31, 1999 and 1998, respectively, including amortization of
software of $595,874 and $88,099, respectively. Depreciation and amortization
expense was $27,179 for the period from May 16, 1997 (date of inception) to
December 31, 1997, including amortization of software of $236.

4. Investment and Deferred Credit

In August 1999, the Company completed a $5,000,000 investment in a company
that provides internet exchange facilities. In conjunction with the investment,
the Company also entered into a strategic agreement to provide high speed
network and data transport services in the facilities of that same company.
Pursuant to the terms of the agreement, the Company was issued warrants to
purchase up to 225,430 shares of common stock of the investee company at an
exercise price of $0.80 per share. The warrants are immediately exercisable and
expire on August 31, 2004. The warrants are treated as a long term investment
with a value based on the intrinsic value of the warrants on issuance, which
was deemed to be similar to the value of the equipment to be installed in the
facilities by the Company. The warrant investment and related deferred credit
were valued at $1,740,210. The deferred credit will be amortized to offset the
depreciation of the related equipment. None of the value of the deferred credit
was amortized as of December 31, 1999 as the Company has not completed
installation of the equipment in the facilities of the investee.

F-11
<PAGE>

NORTHPOINT COMMUNICATIONS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

5. Income Taxes

The provision for income taxes is summarized as follows:

<TABLE>
<CAPTION>
May 16, 1997
(date of
Year Ended Year Ended inception) to
December 31, 1999 December 31, 1998 December 31, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Current tax expense:
Federal............... $ -- $ -- $ --
State................. 10,525 800 800
------------ ----------- --------
10,525 800 800
Deferred tax expense:
Federal............... (67,848,238) (8,188,230) (445,065)
State................. (11,998,215) (1,397,905) --
Valuation allowance
for deferred tax
assets............... 79,846,453 9,586,135 445,065
------------ ----------- --------
Net tax expense..... $ 10,525 $ 800 $ 800
============ =========== ========
</TABLE>

The primary components of temporary differences which give rise to deferred
taxes are as follows:

<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Non-current deferred tax assets
(liabilities):
Net operating loss carryforwards.. $102,003,611 $ 9,410,087
Depreciation...................... (12,445,331) (81,222)
Other............................. 319,373 702,335
------------ ------------
Gross deferred tax asset........ 89,877,653 10,031,200
Valuation allowance............... (89,877,653) (10,031,200)
------------ ------------
Net deferred tax asset.......... $ 0 $ 0
============ ============
</TABLE>

Due to uncertainty surrounding the realization of the favorable tax
attributes in future tax returns, the Company has recorded a valuation
allowance against its net deferred tax asset at both December 31, 1999 and
December 31, 1998. Management evaluates the recoverability of the deferred tax
asset and the level of the valuation allowance. At such time as it is
determined that it is more likely than not that the deferred tax asset will be
realizable, the valuation allowance will be reduced.

At December 31, 1999 and 1998, the Company had net operating loss
carryforwards of approximately $255,009,028 and $23,525,000, respectively, for
both federal and state income tax purposes. The federal carryforwards expire in
the years 2013 through 2019. For federal and state purposes, a portion of the
Company's net operating loss may be subject to certain limitations on annual
utilization in case of changes in ownership, as defined by federal and state
tax laws. Such amount, if any, has not yet been determined.

Deferred tax assets of approximately $8,372,728 as of December 31, 1999
pertain to certain net operating loss carryforwards and credit carryforwards
resulting from the exercise of employee stock options. When recognized, the tax
benefit of these loss and credit carryforwards are accounted for as a credit to
additional paid in capital rather than a reduction in the income tax
provisions.

F-12
<PAGE>

NORTHPOINT COMMUNICATIONS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

A reconciliation of the provision for income tax purposes to the federal
statutory rate is as follows:

<TABLE>
<CAPTION>
May 16, 1997
Year Ended Year Ended (date of Inception) to
December 31, 1999 December 31, 1998 December 31, 1997
------------------ ----------------- ----------------------
<S> <C> <C> <C>
Provision computed at
federal statutory
rate................... $(62,070,092) $(9,705,573) $(504,094)
State taxes, net of
federal tax benefit.... (10,953,546) (1,397,906) --
Permanent difference.... (6,424,583) 1,505,761 59,029
Others.................. (387,707) 11,583 --
Change in valuation
allowance.............. 79,846,453 9,586,135 445,065
------------ ----------- ---------
Net tax provision..... $ 10,525 $ 0 $ 0
============ =========== =========
</TABLE>

The 1999 net tax provision of $10,525 represents minimum income tax payments
to the states that the Company is operating in and is included in selling,
general and administrative expense on the consolidated statement of operations.

6. 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.

7. Capital and Operating Leases

In October 1997, the Company entered into an agreement with a lease provider
under which the Company obtained a capital lease facility of up to $7,500,000.

Under this agreement, the Company entered into capital leases for property
and equipment in 1997 and 1998. The property and equipment leased under this
facility are pledged as collateral for the lease commitment.

F-13
<PAGE>

NORTHPOINT COMMUNICATIONS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Company leases office space under noncancelable operating leases. Rent
expense under operating leases was $6,108,566, $830,655 and $56,838 for the
years ended December 31, 1999 and 1998 and for the period from May 16, 1997
(date of inception) to December 31, 1997, respectively, which includes
$1,902,155, $272,983 and $3,879 in sublease rent expense, respectively. The
following is a schedule of future minimum lease payments under capital and
operating leases as of December 31, 1999:

<TABLE>
<CAPTION>
Capital Leases Operating Leases
-------------- ----------------
<S> <C> <C>
2000..................................... $1,512,058 $ 8,863,583
2001..................................... 1,512,058 8,313,675
2002..................................... 597,283 8,570,196
2003..................................... -- 8,336,845
2004..................................... -- 7,722,657
Thereafter............................... -- 8,534,752
---------- -----------
Total minimum lease payments............. 3,621,399 $50,341,708
===========
Less amount representing interest........ 344,494
----------
Present value of minimum lease payments.. 3,276,905
Less discount recognized for value of
warrants................................ 597,760
----------
Net capital lease obligations............ 2,679,145
Less current portion of net capital lease
obligations............................. 1,026,505
----------
Long term portion of net capital lease
obligations............................. $1,652,640
==========
</TABLE>

8. Credit Facility

On December 9, 1999 the Company entered into a credit facility with a
syndicate of lenders. The credit facility consists of the following:

. Revolving credit facility in an amount up to $55,000,000. The available
revolving credit facility amount will be reduced in quarterly
installments beginning in March 2002 and ending in December 2005. None of
the revolving credit facility was drawn down as of December 31, 1999.

. Delayed draw term loan facility in the amount of $110,000,000. The
Company is required to borrow the entire facility on or before December
9, 2000. The outstanding delayed draw term loan amount is required to be
paid in quarterly installments beginning in March 2002 and ending in
December 2005. None of the delayed draw term loan facility was drawn down
as of December 31, 1999.

. Term loan facility in the amount of $85,000,000, all of which was drawn
down on the closing date. The outstanding term loan amount is required to
be paid in quarterly installments beginning in March 2002 and ending in
June 2006.

The credit facility also provides for the issuance of letters of credit on
our behalf by the lenders.

Borrowings under the credit facility are collateralized by a first priority
lien against substantially all of the Company's assets. The lenders under the
credit facility have agreed that the liens which collateralize the credit
facility may also collateralize an additional $50,000,000 of additional
borrowings in the event the 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 LIBOR plus, in each case, an additional interest rate of three
and one-quarter percent per year to four and one-half percent per year.

F-14
<PAGE>

NORTHPOINT COMMUNICATIONS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In July 1998, the Company finalized a commitment from an investment bank to
provide up to $50,000,000 of debt financing (the "Bridge Loan"). The Bridge
Loan carried interest at 10% per annum through January 15, 1999. The interest
rate then increased to 11.5%. As of December 31, 1998, the Company had drawn
down the entire $50,000,000 available under its bridge loan commitment.

In connection with the Bridge Loan, the Company issued warrants (the "Bridge
Loan Warrants") to purchase 2,925,000 shares of common stock to this bank, at
an exercise price of $0.0044 per share for the first 562,500 shares, and
$2.9644 for the remainder.

The fair value of the warrants has been determined using a Black-Scholes
Model, applying an expected life of 5 years, a weighted average risk-free
interest rate of 5.31%, an expected dividend yield of zero percent and a
volatility of 75%. Based on the fair value of these warrants, the Company has
recognized a discount of $6,082,567 to the bridge loan, which was amortized
over the life of the loan term. Amortization of this discount amounted to
$1,352,529, $1,867,684 and $0 in 1999, 1998 and 1997, respectively. On April 5,
1999, the Company paid off the Bridge Loan and therefore all remaining
unamortized debt discount was recognized as interest expense in 1999.

9. Common Stock

The Company sold 17,250,000 shares of common stock at $24 per share it its
initial public offering on May 5, 1999. Net of underwriting discounts,
commissions, and other offering fees, the proceeds to the Company were
$386,441,000.

10. Preferred Stock

Upon the Company's initial public offering, the outstanding shares of all
Series B, Series C, and Series D-1 preferred stock automatically converted into
79,690,842 shares of common stock.

11. Stock Options

In September 1997, the Company adopted the 1997 Stock Option Plan under
which the Board of Directors may grant options to purchase common stock either
as incentive stock options to employees and directors or nonstatutory stock
options to employees, directors, and consultants. In March 1999, the Company
adopted the 1999 Stock Plan. The terms under these plans are similar. Options
granted under these plans as incentive stock options are issued at an exercise
price between 100% and 110% of fair market value, as determined by the Board of
Directors. Nonstatutory options are issued at between 85% and 110% of their
fair market value. At December 31, 1999, 1998 and 1997, 28,125,000, 16,875,000
and 8,194,639 shares of common stock, respectively, have been reserved for the
exercise of stock options.

Generally, options granted under these plans become exercisable at a rate of
1/4 of the total at the end of twelve months from the vesting commencement
date, and 1/48 of the total per month thereafter of employment. Options
generally expire ten years from the date of the grant except in the case of an
incentive stock option granted to an optionee who, at the time of the option is
granted, owns stock representing more than ten percent of the voting power of
all classes of stock outstanding. In this case, the term of the option is 5
years from the date of the grant.

F-15
<PAGE>

NORTHPOINT COMMUNICATIONS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following table summarizes activity under the Company's stock option
plan for the period from May 16, 1997 (date of inception) to December 31, 1997
and for the years ended December 31, 1998 and 1999:

<TABLE>
<CAPTION>
Shares Available Number of Options Weighted Average
for Grant Outstanding Exercise Price
---------------- ----------------- ----------------
<S> <C> <C> <C>
Reserved for issuance... 8,194,639
Granted............... (5,130,000) 5,130,000 $ 0.03
Exercised............. -- --
Cancelled............. -- --
----------- ---------- ------
Balances as of December
31, 1997............... 3,064,639 5,130,000 $ 0.03
Reserved for issuance... 8,680,360
Granted............... (9,088,087) 9,088,087 $ 0.29
Exercised............. -- (241,875) $ 0.15
Cancelled............. 217,969 (217,969) $ 0.10
----------- ---------- ------
Balances as of December
31, 1998............... 2,874,881 13,758,243 $ 0.20
Reserved for issuance... 11,250,000
Granted............... (11,440,307) 11,440,307 $15.98
Exercised............. -- (3,630,578) $ 0.32
Cancelled............. 1,565,167 (1,565,167) $ 9.46
----------- ---------- ------
Balances as of December
31, 1999............... 4,249,741 20,002,805 $ 8.40
=========== ========== ======
</TABLE>

The following table summarizes information with respect to stock options
outstanding and exercisable at December 31, 1999:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------- --------------------
Weighted Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/99 Life (Years) Price at 12/31/99 Price
--------------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$.03 - $.67 10,486,570 8.33 $ .25 3,411,117 $ .18
$3.56 - $6.67 3,586,924 9.19 $ 6.09 304,532 $ 6.48
$18.00 - $18.63 2,458,511 9.47 $18.23 -- $ --
$21.56 - $26.75 2,044,400 9.68 $23.61 54,446 $24.00
$31.69 - $38.25 1,277,000 9.57 $34.42 -- $ --
$43.25 149,400 9.36 $43.25 -- $ --
---------- ---------
20,002,805 8.85 $ 8.40 3,770,095 $ 1.03
========== =========
</TABLE>

The Company has elected to follow Accounting Principles Board Opinion No. 25
(APB No. 25), Accounting for Stock Options Issued to Employees and related
interpretations in accounting for its employee stock options. Under APB No. 25,
compensation expense is recognized based on the amount by which the fair value
of the underlying common stock exceeds the exercise price of the stock options
at the measurement date, which in the case of employee stock options is
typically the date of grant. For financial reporting purposes, the Company has
determined that the deemed fair market value on the date of grant of employee
stock options was in excess of the exercise price of the options. As a result,
the Company recorded deferred compensation of $6,463,280, $14,380,698 and
$1,203,614 for the years ended December 31, 1999 and 1998 and for the period
from May 16, 1997, date of inception, to December 31, 1997, respectively. This
amount was recorded as a reduction of stockholders' equity and is being
amortized as a charge to operations over the vesting period of the applicable
options.

F-16
<PAGE>

NORTHPOINT COMMUNICATIONS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

During the years ended December 31, 1999 and 1998 and for the period from
May 16, 1997, date of inception, to December 31, 1997, the Company recognized
$5,406,117, $2,387,941 and $173,612, respectively, of employee stock
compensation expense.

SFAS No. 123, Accounting for Stock-Based Compensation, encourages adoption
of a fair value-based method for valuing the cost of stock-based compensation.
However, it allows companies to continue to use the intrinsic value method
under APB No. 25 for options granted to employees and disclose pro forma net
earnings and earnings per share in accordance with SFAS No. 123. Had
compensation cost for the Company's stock-based compensation plans been
determined consistent with SFAS No. 123, the Company's net earnings and
earnings per share would have been as follows:

<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------ -----------
<S> <C> <C> <C>
Net loss as reported........... $(183,698,217) $(28,846,706) $(1,440,269)
Pro forma net earnings......... (209,684,526) (29,994,072) (1,453,377)
Net loss per share as
reported...................... (2.02) (1.18) (0.07)
Pro forma earnings per share... (2.31) (1.23) (0.07)
</TABLE>

The weighted average fair value of stock options granted during the years
ended December 31, 1999 and 1998 and for the period from May 16, 1997 to
December 31, 1997 was $7.83, $0.75 and $0.05, respectively.

The effects of applying SFAS No. 123 for the pro forma disclosures are not
representative of the effects expected on reported net earnings and earnings
per share in future years, since valuations are based on highly subjective
assumptions about the future, including stock price volatility and exercise
patterns.

The Company used the Black-Scholes option pricing model to determine the
fair value of grants made in 1999, 1998 and 1997. The following assumptions
were applied in determining the pro forma compensation cost:

<TABLE>
<CAPTION>
1999 1998 1997
------ ----- ----
<S> <C> <C> <C>
Weighted average risk-free interest rate................. 4.92% 5.25% 5.7%
Expected dividend yield.................................. 0% 0% 0%
Expected option life in years............................ 3.5 5 5
Volatility............................................... 87.62% 0% 0%
</TABLE>

Because the Company did not have actively traded equity securities prior to
May 1999, volatility was not considered in determining the fair value of stock-
based awards to employees during 1998 and 1997.

In 1998 the Company granted options to a non-employee and charged the
related costs to stock compensation expense. The Company applies SFAS No. 123
to account for such options. The fair value of these options issued, $275,784,
was determined using a Black-Scholes model with the above assumptions and a
volatility of 75%.

12. Employee Benefit Plan

In January 1997, the Company established the NorthPoint Communications
401(k) plan (the Plan) which covers substantially all employees. Under the
Plan, employees are permitted to contribute up to 20% of gross compensation not
to exceed the annual 402(g) limitation for any plan year. Discretionary
contributions may be made by the Company as determined by the Board of
Directors. No contributions were made by the Company during 1999, 1998 and
1997.

In May 1999, the Company instituted an employee stock purchase plan. The
provisions of the plan allow employees to purchase the Company's stock at 85%
of the lesser of its fair market value on the first or last day

F-17
<PAGE>

NORTHPOINT COMMUNICATIONS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

of each offering period. The first offering period commenced May 4, 1999 and
ended June 30, 1999. Subsequent offering periods have a duration of six months.
During the year ended December 31, 1999, 79,448 shares of the Company's common
stock were purchased under the plan.

13. Related Party Transactions

In 1999, 1998 and 1997, legal fees of $1,166,452, $114,831 and $76,804,
respectively, were paid to law firms which, along with attorneys of the firms,
are stockholders in the Company.

A principal stockholder of the Company owns capital stock of a vendor of the
Company. The Company's payments to the vendor in 1999, 1998 and 1997 totaled
$42,497,366, $8,490,467 and $203,000, respectively.

14. Stock Warrants

Equipment Lease Warrants

In conjunction with the capital leases of property and equipment (Note 7),
the Company issued warrants to purchase up to 1,251,524 shares of common stock
to an equipment lease provider, at an exercise price of $0.30 per share. As of
December 31, 1997 and 1998, warrants to purchase 250,303 and 917,779 shares,
respectively, had vested. No additional warrants vested during 1999. The
equipment lease provider exercised all of these vested warrants during 1999.
The fair value of the warrants on each of the vesting dates has been determined
using a Black-Scholes Model, applying an expected life of 5 years, a weighted
average risk-free interest rate of 5.7%, an expected dividend yield of zero
percent and a volatility of 75%, resulting in a debt discount of $1,061,268 and
related amortization of $265,321 and $198,204 in 1999 and 1998, respectively.

Bridge Loan Warrants

In conjunction with the Bridge Loan (Note 8), the Company issued warrants to
purchase 562,500 shares of common stock for an exercise price of $0.0044 per
share and 2,362,500 shares of common stock for an exercise price of $2.9644 per
share. The Bridge Loan Warrants are exercisable immediately and expire in July
2003. These warrants carry provisions which protect the holder from dilution
caused by certain specified events, including:

. stock or cash dividends, stock splits, reverse stock splits or
reclassifications;

. issuances of common stock, rights, options or warrants at prices per
share lower than the then current market value per share;

. distributions of debt, assets or cash; and

. consolidation or merger with or into another person or sale of all or
substantially all of the Company's assets.

In these events, the exercise price and number of shares issuable upon
exercise of these warrants will be adjusted to reduce the dilution caused by
these events.

Contingent Warrants

The Company has agreed to issue warrants to purchase up to 212,568 shares of
its common stock at a price of $1.5689 per share to one of its shareholders. No
warrants have been issued under this agreement at December 31, 1999.

F-18
<PAGE>

NORTHPOINT COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Microsoft Warrants

At the time of the Company's initial public offering, Microsoft purchased
common shares for $30,000,000 and the Company granted Microsoft a warrant to
purchase $30,000,000 of Class B common stock at an exercise price per share of
$36 in conjunction with this investment. This warrant is exercisable
immediately and will expire in May 2004. The fair value of the warrants has
been determined using a Black-Scholes Model. The fair value of these warrants
is $2,618,916.

15. Subsequent Events

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.

F-19
<PAGE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You
must not rely on any unauthorized information or representations. This
prospectus is an offer to sell only the shares offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The
information contained in this prospectus is current only as of its date.

-------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Where You Can Find More Information...................................... i
Documents Incorporated By Reference...................................... i
Disclosure Regarding Forward-Looking Statements.......................... ii
Summary.................................................................. 1
Summary Consolidated Financial Data...................................... 8
Risk Factors............................................................. 9
Use of Proceeds.......................................................... 24
The Exchange Offer....................................................... 25
Capitalization........................................................... 37
Selected Consolidated Financial Data..................................... 38
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 40
Business................................................................. 48
Management............................................................... 67
Principal Stockholders................................................... 78
Certain Transactions..................................................... 80
Description of Other Indebtedness........................................ 83
Description of the Notes................................................. 85
Material United States Federal Income Tax Considerations................. 120
Plan of Distribution..................................................... 123
Legal Matters............................................................ 123
Experts.................................................................. 123
Index to Consolidated Financial Statements............................... F-1
</TABLE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

-----------------

Prospectus

-----------------

NorthPoint Communications Group, Inc.

-------------

[LOGO OF NORTHPOINT]

-------------

Offer to Exchange
all outstanding
12 7/8% Senior Notes due 2010
for
12 7/8% Senior Notes due 2010

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------