ATG GROUP INC, S-1, 2000-04-17

ATG GROUP INC
S-1, 2000-04-17

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 17, 2000

REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

ATG GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 4813 94-3344665
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

110 STONY POINT ROAD
SECOND FLOOR
SANTA ROSA, CALIFORNIA 95401
(707) 284-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------

CLIFFORD G. RUDOLPH
CHIEF EXECUTIVE OFFICER
ATG GROUP, INC.
110 STONY POINT ROAD
SECOND FLOOR
SANTA ROSA, CALIFORNIA 95401
(707) 284-5000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------

COPIES TO:

<TABLE>
<S> <C>
LARRY W. SONSINI, ESQ. THOMAS R. BROME, ESQ.
ANDREW J. HIRSCH, ESQ. CRAVATH, SWAINE & MOORE
DANIEL R. MITZ, ESQ. WORLDWIDE PLAZA
BRET M. DIMARCO, ESQ. 825 EIGHTH AVENUE
WILSON SONSINI GOODRICH & ROSATI NEW YORK, NEW YORK 10019
PROFESSIONAL CORPORATION (212) 474-1000
650 PAGE MILL ROAD
PALO ALTO, CA 94304
(650) 493-9300
</TABLE>

------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.0001 par value per
share................................. $200,000,000 $52,800
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.

(2) Calculated pursuant to Rule 457(a) under the Securities Act of 1933 based on
an estimate of the proposed maximum aggregate offering price.
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a) MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.

SUBJECT TO COMPLETION, DATED , 2000
PROSPECTUS
SHARES

[ATG GROUP, INC. LOGO]
ATG GROUP, INC.
COMMON STOCK
$ PER SHARE
------------------

We are selling shares of our common stock. The underwriters named
in this prospectus may purchase up to additional shares of our
common stock from us under certain circumstances.

This is an initial public offering of our common stock. We expect the
initial public offering price to be between $ and $ per share
and we have applied to have the common stock included for quotation on the
Nasdaq National Market under the symbol "ATGG."

------------------

INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 7.

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

------------------

<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- --------
<S> <C> <C>
Public Offering Price $ $
Underwriting Discount $ $
Proceeds to ATG Group, Inc. (before expenses) $ $
</TABLE>

The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about
, 2000.

------------------

SALOMON SMITH BARNEY
CREDIT SUISSE FIRST BOSTON
LEHMAN BROTHERS
FIRST UNION SECURITIES, INC.
J.P. MORGAN & CO.

, 2000
<PAGE> 3

[INSIDE COVER ART]
<PAGE> 4

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION PROVIDED BY THIS
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS
PROSPECTUS.

------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 2
Risk Factors................................................ 7
Use of Proceeds............................................. 15
Dividend Policy............................................. 15
Capitalization.............................................. 16
Dilution.................................................... 17
Selected Historical Financial and Operating Information of
ATG Group, Inc. .......................................... 18
Unaudited Pro Forma Condensed Consolidated Statement of
Operations................................................ 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Business.................................................... 27
Management.................................................. 46
Certain Relationships and Related Transactions.............. 58
Principal Stockholders...................................... 60
Description of Capital Stock................................ 62
Shares Eligible for Future Sale............................. 64
Underwriting................................................ 66
Legal Matters............................................... 68
Experts..................................................... 68
Where You May Find Additional Information................... 68
Index to Consolidated Financial Statements.................. F-1
</TABLE>

------------------------

We have applied to register some of our logos as trademarks.

Until , 2000 (25 days after the date of this prospectus),
all dealers that buy, sell or trade the common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.

1
<PAGE> 5

PROSPECTUS SUMMARY

This summary highlights information that we believe is especially important
concerning our business and the offering. As a summary, it is necessarily
incomplete and does not contain all of the information that you should consider
before investing in our common stock. You should read the entire prospectus
carefully, especially "Risk Factors" beginning on page 7 and our consolidated
financial statements and the accompanying notes. Except as otherwise required by
the context, references in this prospectus to "ATG", "we", "us", or "our" refer
to the combined business of ATG Group, Inc. and our direct and indirect
subsidiaries.

OUR COMPANY

We are a rapidly growing facilities-based integrated communications
provider offering bundled Internet, broadband data and traditional voice
communications services. We target markets comprised of clusters of third and
fourth tier cities that we believe are underserved by the incumbent local and
long distance carriers. We currently offer Internet, data and traditional voice
services in eight markets. We expect to commence operations in five additional
markets by the end of the year and in another 15 markets by the end of 2001. Our
goal is to create a national footprint by offering services in selected markets
throughout the United States by the year 2005.

In each of our markets we strive to be the provider of choice, offering
one-stop, bundled communications solutions to our customers on a single, easy to
understand, monthly invoice. We focus our sales and marketing efforts on small
and medium-sized business customers as we believe there is significant unmet
demand from these businesses for advanced broadband communications solutions,
competitive pricing and responsive local service. We employ local sales,
customer service and technical support personnel in each of our markets,
supported by our customized back office systems, to enable us to respond quickly
to the needs of our customers. We maintain highly visible retail offices in each
market and encourage existing and prospective customers to visit us and receive
demonstrations of our advanced Internet, data and voice communications services.

We design and construct capital efficient networks to allow us to enter
each of our target markets quickly. This allows us to capitalize on the
significant growth in national Internet usage as well as the increasing demand
for locally supported and integrated communications services from small and
medium-sized businesses, Internet service providers, telecommuters and other
information dependent users. Our scalable and flexible network architecture
allows us to build a network that connects cities within a market to a centrally
located transmission and switching infrastructure. To reduce costs and to
accelerate our entry into markets we often lease or buy existing fiber optic
transport facilities from other carriers.

We expect to expand our network to meet customer demand for bundled
communications solutions. As of March 31, 2000, we served 15,460 customers with
57,616 facilities-based and resale access lines, including 423 DSL connections.
We believe that our services, coupled with superior local customer support, will
increase customer loyalty as well as provide cost effective communications
solutions to our target customers. As of March 31, 2000 our facilities-based
customers have signed contracts with an average term of 3.1 years and 71% of our
facilities-based customers have purchased two or more of our services.

OUR OPPORTUNITY

According to International Data Corporation, the market for communications
services is growing rapidly in the United States. In 1999, the voice and data
segments of the communications market generated approximately $230 billion in
total annual revenue and is expected to grow at a rate of four to six percent
annually over the next four years. Industry experts estimate that the Internet
and data segments of the telecommunications market will grow from $38 billion in
1998 to $82 billion in 2002, a compounded annual growth rate of 21.1%. Much of
this growth is expected to result from an increased demand for e-mail, web
hosting services, e-commerce, collaborative workflow and real-time video
services and applications.

2
<PAGE> 6

OUR STRATEGY

We are pursuing an aggressive growth strategy to become the provider of
choice to small and medium-sized businesses in our target markets throughout the
United States, offering one-stop, bundled communications solutions. The key
components of our business strategy are the following:

- bring services to underserved markets;

- target small and medium-sized businesses;

- provide bundled services with a single point of contact;

- employ a local approach to sales and customer service;

- build capital efficient local networks;

- leverage our state-of-the-art, scalable operating support and back
office systems;

- leverage our proven management team; and

- accelerate growth through strategic acquisitions.

OUR INVESTORS

To date we have raised $280 million in equity financing from a group of
investors that include entities affiliated with: Alta Communications, AT&T
Ventures, Centennial Fund, L.P., First Union Capital Markets, J.P. Morgan
Capital Corporation, Norwest Venture Partners, Telecom Partners and Texas
Pacific Group.

CORPORATE INFORMATION

Our principal executive offices are at 110 Stony Point Road, Second Floor,
Santa Rosa, California 95401. Our telephone number is (707) 284-5000. We were
incorporated in Delaware in March 1999 and our predecessor was incorporated in
Delaware in July 1998.

3
<PAGE> 7

THE OFFERING

Common stock offered.......... shares

Common stock outstanding after
this offering................. shares

Proposed Nasdaq National
Market symbol................. "ATGG"

Use of proceeds............... We intend to use the net proceeds of this
offering primarily to fund capital
expenditures, for potential acquisitions, to
redeem all outstanding redeemable preferred
stock, to fund working capital and operating
losses and for general corporate purposes. See
"Use of Proceeds."

Risk factors.................. Investing in shares of our common stock
involves risk. See "Risk Factors" for a
discussion of matters you should consider
before investing in shares of our common stock.

The above information is based on 114,682,857 shares outstanding as of
March 31, 2000 and:

- gives effect to the issuance and sale of 35,485,605 shares of our Series
D Preferred Stock on April 13, 2000;

- excludes 12,426,750 shares of common stock reserved for issuance under
our 1998 Stock Option Plan, of which 10,426,750 shares were subject to
outstanding options with a weighted average exercise price of $1.283 per
share, and 2,000,000 shares were available for future grants;

- excludes 17,202,429 shares that will be available for issuance under our
2000 Equity Incentive Plan after the completion of the offering;

- excludes 5,800,000 shares that will be available for issuance under our
2000 Employee Stock Purchase Plan after the completion of the offering;
and

- excludes the issuance of 171,900 shares issued to acquire all of the
outstanding stock of a private company in April 2000.

The information in this prospectus, other than the financial pages and
selected financial information:

- assumes the redemption of all outstanding shares of our redeemable
preferred stock and the conversion of all of our other outstanding
shares of preferred stock into 109,878,471 shares of common stock upon
the completion of this offering;

- assumes that the underwriters will not exercise their option to purchase
up to additional shares of common stock to cover
over-allotments; and

- reflects the mid-point of the range of the estimated initial public
offering price of $ per share.

4
<PAGE> 8

SUMMARY HISTORICAL CONSOLIDATED AND PRO FORMA FINANCIAL AND OPERATING
INFORMATION

The summary consolidated financial and operational data set forth below
should be read in conjunction with our financial statements and notes to our
financial statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations", included elsewhere in this prospectus. The
statement of operations data for the period from inception (July 22, 1998) to
December 31, 1998 and for the year ended December 31, 1999 and the balance sheet
data as of December 31, 1998 and 1999 are derived from our audited financial
statements included elsewhere in this prospectus.

The pro forma statement of operations data gives effect to our acquisition
of Shared Communications as if it had occurred on January 1, 1999. The pro forma
financial data set forth below may not be indicative of our financial condition
or results of operations had the acquisition actually occurred on the dates
assumed, nor do they purport to be indicative of our future financial position
or results of operations.

<TABLE>
<CAPTION>
PERIOD FROM INCEPTION PRO FORMA
(JULY 22, 1998) YEAR ENDED YEAR ENDED
TO DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1999 1999
--------------------- ------------ ------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................................................. $ -- $ 23,358 $ 50,033
Cost of services........................................ -- 16,197 33,870
------- --------- --------
Gross profit.......................................... -- 7,161 16,163
Costs and expenses:
Selling, general and administrative................... 2,498 22,571 29,823
Depreciation and amortization......................... 5 4,622 7,997
------- --------- --------
Total costs and expenses............................ 2,503 27,193 37,820
------- --------- --------
Loss from operations.................................... (2,503) (20,032) (21,657)
Interest expense........................................ -- (3,892) (9,386)
Interest and other income............................... 111 801 473
------- --------- --------
Net loss before taxes................................... (2,392) (23,123) (30,570)
Provision for income taxes.............................. (1) (5) (5)
------- --------- --------
Net loss................................................ (2,393) (23,128) (30,575)
Dividends on preferred stock............................ (349) (5,053) (5,053)
------- --------- --------
Net loss attributed to common stockholders.............. $(2,742) $ (28,181) $(35,628)
======= ========= ========
Basic and diluted net loss per share.................... $ (0.75) $ (7.06) $ (8.93)
======= ========= ========
Shares used in computing basic and diluted net loss per
share................................................. 3,650 3,989 3,989
======= ========= ========
</TABLE>

5
<PAGE> 9

<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
(JULY 22, 1998) YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
1998 1999
--------------------- ------------
(IN THOUSANDS)
<S> <C> <C>
OTHER FINANCIAL DATA:
Capital expenditures........................................ $ (394) $ (72,827)
Net cash used in operating activities....................... (1,727) (23,242)
Net cash used in investing activities....................... (394) (141,452)
Net cash provided by financing activities................... 27,015 159,891
EBITDA...................................................... (2,498) (15,410)
</TABLE>

EBITDA consists of net loss excluding net interest, taxes, depreciation and
amortization. We have provided EBITDA because it is a measure of financial
performance commonly used for comparing companies in the telecommunications
industry in terms of operating performance, leverage and ability to incur
service debt. EBITDA provides an alternative measure of cash flow from
operations. You should not consider EBITDA as a substitute for operating loss,
as an indicator of our operating performance or as an alternative to cash flows
from operating activities as a measure of liquidity. We may calculate EBITDA
differently from other companies. For further information, see our financial
statements and related notes contained elsewhere in this prospectus.

<TABLE>
<CAPTION>
AS ADJUSTED
AS OF DECEMBER 31, AS OF
------------------- DECEMBER 31,
1998 1999 1999
------- -------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $24,894 $ 20,091 $
Working capital............................................. 24,233 11,028
Property and equipment, net................................. 389 80,073 80,073
Intangibles, net............................................ -- 69,245
Total assets................................................ 25,389 192,387
Long-term debt, net of current portion...................... -- 70,204 70,204
Stockholders' equity........................................ 22,623 95,833
</TABLE>

The as adjusted balance sheet data as of December 31, 1999 gives effect to
the issuance of 39,428,498 shares of Series D Preferred Stock at a per share
price of $4.44 in April 2000, the conversion of all outstanding preferred stock
into common stock, the redemption of our redeemable preferred stock upon the
closing of the offering and the sale of shares of common stock in this
offering at the initial public offering price of $ per share, the mid-point
of the range of the estimated initial public offering price, after deducting
estimated underwriting discounts and commissions and offering expenses.

<TABLE>
<CAPTION>
AS OF
MARCH 31, 2000
--------------
(UNAUDITED)
<S> <C>
OPERATING DATA:
Access lines in service, including DSL connections.......... 57,616
Number of class 5 voice switches deployed................... 5
Number of employees......................................... 472
Number of customers......................................... 15,460
Markets in operation........................................ 8
Collocations in service..................................... 22
</TABLE>

6
<PAGE> 10

RISK FACTORS

An investment in our common stock involves a high degree of risk. Before
you invest in our common stock, you should consider carefully the risks
described below, together with all of the other information included in this
prospectus. If any of the risks described below were to occur, our business,
financial condition and results of operations could be materially adversely
affected. In that case, the trading price of our common stock could decline and
you could lose part or all of your investment.

RISKS RELATED TO OUR BUSINESS

WE HAVE A LIMITED HISTORY OF OPERATIONS, AND YOU THEREFORE HAVE LIMITED
INFORMATION ON WHICH TO BASE YOUR INVESTMENT DECISION.

We began providing facilities-based telecommunications services in our
first market in July 1999. Substantially all of our revenue to date has been
derived from the resale business of Shared Communications, which we acquired in
July 1999. Many of our facilities-based services are new or have recently been
introduced in new markets. Therefore, you have limited historical financial
information upon which to evaluate how we may perform in the future. We cannot
assure you that we will be able to compete successfully in the integrated
communications provider business.

WE HAVE A HISTORY OF NEGATIVE CASH FLOW AND MAY NEVER BECOME PROFITABLE.

While we have developed our business and expanded our networks and markets,
we have incurred negative cash flow from operations of $1.7 million for the
period ended December 31, 1998 and $23.2 million for the year ended December 31,
1999. Because our business plan envisions continued expansion, we expect our
negative cash flow to continue for the next several years. This may materially
impede our ability to pursue our business strategy.

If we cannot achieve profitability from our operating activities, we may
not be able to meet our:

- capital expenditure requirements;

- debt service obligations; or

- working capital needs.

OUR FUTURE GROWTH WILL REQUIRE SIGNIFICANT CAPITAL AND IF WE DO NOT OBTAIN
NEEDED FINANCING OUR ABILITY TO IMPLEMENT OUR BUSINESS STRATEGY COULD BE
IMPAIRED.

Implementation of our business plan will require significant amounts of
capital. Historically, we have funded our operating losses and capital
expenditures from the proceeds of equity offerings and through debt financing.
Although we anticipate that our existing funds, amounts available under our
credit facility and the net proceeds of this offering will allow us to fund
capital expenditures, operating expenses and debt service obligations for our 16
approved markets and 12 additional average-sized markets, changes in the rate at
which we enter new markets, acquisitions or other factors could require us to
raise additional capital to continue expanding our business. Additional debt we
may incur during the next few years to finance our expansion could require us to
dedicate a substantial portion of our future cash flow from operations to the
payment of the principal and interest. This could reduce the funds available for
other business purposes, limit our ability to obtain additional financing and
place us at a competitive disadvantage compared to competitors who have less
debt than we do.

We cannot be certain that additional financing will be available to us on
acceptable terms when required, or at all. In addition, the terms of our
existing bank credit facility limit our ability to incur additional debt or sell
some types of preferred stock. If we do not obtain needed financing, our ability
to implement our business strategy could be impaired.

7
<PAGE> 11

OUR RELIANCE ON AND THE CONDUCT OF THE INCUMBENT LOCAL TELEPHONE COMPANIES COULD
CAUSE US TO LOSE CUSTOMERS.

We depend on facilities leased or purchased from, and interconnection
agreements with, the incumbent local telephone companies in our markets. These
companies are our competitors and currently dominate the provision of
telecommunication services in our markets. While federal legislation regulating
the telecommunications industry has enhanced competition in the local service
market by requiring the incumbent local telephone companies to provide access to
their networks through interconnection agreements and to offer access to
portions of their network and retail services at prescribed rates to other
telecommunications carriers, our failure to negotiate required lease or
interconnection agreements or to continue or renew existing lease or
interconnection arrangements on terms favorable to us could result in
interruptions in service and, in turn, customer dissatisfaction and the loss of
potential and existing customers as well as having an adverse financial impact
on our business.

We are and will continue to be dependent on facilities leased or purchased
from incumbent local telephone companies to assure uninterrupted service and
competitive services. Blocked calls result in customer dissatisfaction and risk
the loss of business. Interconnection agreements typically have short terms and
require periodic renegotiation. If the terms of any interconnection agreements
are not favorable to us, our business may be adversely affected. In addition,
the prices set forth in our interconnection agreements may be subject to
significant rate increases at the discretion of the regulatory authority in each
state in which we operate. We cannot assure you that the rates charged to us
under the interconnection agreements will allow us to offer low enough usage
rates to attract and retain customers.

The pace at which we are able to add new customers and services could also
be adversely affected if the incumbent local telephone companies do not provide
us with necessary collocation space, intercompany network connections,
installation of business access lines and the means to share information about
customer accounts, service orders and repairs on a timely basis. These items are
sometimes referred to as unbundled network elements. The rules governing which
unbundled network elements the incumbent local telephone companies must provide
and the cost methodology for providing these elements are currently under FCC
and judicial review. Incumbent local telephone companies may not provide
adequate service quality over the portions of the network which they control,
impairing our reputation with existing customers who can choose to switch to
other service providers including the incumbent local telephone company.

Interconnection agreements are similarly subject to review and approval by
various federal and state regulators. In addition, parties to the agreements may
seek to have the agreements modified based upon the outcome of regulatory or
judicial rulings occurring after the dates of the agreements. The outcome of
these rulings could materially harm our business. In addition, aspects of
interconnection agreements, including the price and economic terms of these
agreements, have been subject to litigation and regulatory action. See
"Business -- Government Regulation" for a more complete description of these
developments.

THE RISKS ASSOCIATED WITH OUR RAPID GROWTH STRATEGY AND ACQUISITIONS COULD HARM
OUR BUSINESS AND RESULTS OF OPERATIONS.

Our business plan contemplates rapid expansion of our operations. Our
failure to properly manage our growth could adversely effect the continued
implementation of our business strategy. We cannot assure you that we can:

- accurately assess the market opportunity in the markets we enter;

- effectively allocate or obtain management resources;

- expand our employee base with highly-skilled personnel;

- implement reliable financial and management systems and controls;

- control expenses; or

- obtain and maintain necessary approvals in any additional jurisdiction.

8
<PAGE> 12

Our strategy also anticipates expansion into additional markets through
strategic acquisitions. We cannot assure you that we will be able to identify
suitable acquisition candidates in the future or successfully compete with other
bidders for targeted acquisitions. Our inability to complete strategic
acquisitions could negatively impact our planned growth and expansion into
additional markets. Evaluating potential acquisitions and the acquisition
process itself may divert our management's time from current operations. In
addition, integrating acquired businesses into our operations can be difficult
and time-consuming. We cannot assure you that:

- we will successfully integrate the operations and personnel of acquired
businesses into our operations;

- we will not encounter unexpected difficulties in acquired markets where
we have little experience;

- the integration of acquired businesses into our business will not be more
expensive or take longer than anticipated; or

- relationships with employees or customers of the acquired businesses will
not be impaired as a result of changes in management or other changes.

IF WE ARE UNABLE TO DEVELOP AND INTEGRATE OUR OPERATING SUPPORT SYSTEMS, WE MAY
BE UNABLE TO EFFECTIVELY BILL OUR CLIENTS, PROVIDE GOOD CUSTOMER SERVICE OR
PROVIDE TIMELY INFORMATION TO OUR MANAGEMENT.

Sophisticated and effective back office information and processing systems
are vital to our growth and our ability to monitor costs, bill customers,
provision customer orders and achieve operating efficiencies. Our development
and implementation of these systems rely on choosing and integrating products
and services offered by third party vendors to produce efficient operational
solutions. We cannot assure you that the development of our systems will be
successful or that they will perform as expected as we grow our customer base.
We are developing our operating support system capabilities to accommodate new
products and enhanced services and to allow smooth integration of acquired
businesses. We cannot assure you that these integrated systems will be
successfully developed or implemented on a timely basis or that they will be
implemented at all. Nor can we assure you that, once implemented, they will
perform as expected. Risks to our business associated with our operating support
systems include:

- our failure to adequately identify all of our information and processing
needs;

- failure by vendors to deliver their products and services in a timely and
effective manner and at acceptable costs;

- our failure to integrate new products or services effectively;

- equipment failure related to our information and processing systems; and

- the possibility that our systems will contain undetected software errors.

Furthermore, as our vendors revise and upgrade their hardware, software and
equipment technology, we could encounter difficulties in integrating the new
technology into our business, or the new systems may not be appropriate for our
business. In addition, license agreements with third party vendors may not be
renewed or may be canceled.

OUR RELIANCE ON LEASED TRANSPORT FACILITIES AND OTHER THIRD PARTY PROVIDERS
COULD MATERIALLY HARM OUR BUSINESS.

We currently lease a substantial portion of our transport facilities,
particularly our fiber optic lines, as well as other unbundled network elements,
from third parties. We expect to continue to lease a substantial portion of our
transport capacity from other carriers, some of which are our competitors.

We are also dependent on third-party vendors for substantial amounts of
fiber, conduit, computers, software, switches, routers and related components
that we use to expand and upgrade our networks. Our reliance on third party
vendors involves a number of risks, including the absence of guaranteed capacity

9
<PAGE> 13

and reduced control over delivery schedules, quality assurance and cost. If any
of these relationships is terminated or if a vendor fails to provide reliable
services or equipment, and we are unable to reach suitable alternative
arrangements quickly or on favorable terms, we may experience significant delays
and additional costs in providing services to our existing and prospective
customers and deploying our network in our target markets.

BECAUSE INTERNET, DSL AND COMPETITIVE LOCAL SERVICES ARE NEW AND EVOLVING, WE
CANNOT PREDICT MARKET ACCEPTANCE FOR THESE SERVICES.

The markets for Internet access, high-speed data communications, including
services provided over DSL, and competitive local service are in the early
stages of development. Because we offer services in these new and evolving
markets 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. We cannot be sure that our new services will receive market
acceptance or that prices and demand for these services will be sufficient to
sustain profitable operations.

FAILURES OR BREACHES OF THE SECURITY OF OUR NETWORKS COULD CAUSE DELAYS OR
INTERRUPTION OF SERVICE WHICH COULD CAUSE US TO LOSE CUSTOMERS.

Our success requires that our network infrastructure provides superior
reliability, capacity and security. Our networks are subject to physical damage,
power loss, capacity limitations, software defects, breaches of security and
other similar factors, which may cause interruptions in service or reduced
capacity for our customers.

A FAILURE TO EFFECTIVELY MANAGE THE RISKS RELATED TO THE PROVISION OF INTERNET
SERVICES COULD HARM OUR BUSINESS.

In addition to our telephony and enhanced data services, we act as an
Internet service provider to our customers. The Internet is comprised of many
Internet service providers who operate their own networks and interconnect with
each other at various peering points. We are in the process of developing
peering relationships with other national Internet service providers. These
relationships permit us to exchange traffic with these providers without having
to pay settlement charges. Although we expect to meet the industry's current
requirements for maintaining peering relationships with the national Internet
service providers, these requirements may change. We cannot assure you that we
will be able to expand or adapt our network infrastructure to meet the current
requirements or any new requirements on a timely basis, at a commercially
reasonable cost, or at all. In addition, we cannot guarantee that other national
Internet service providers will maintain peering relationships with us.

The law in the United States relating to the liability of Internet service
providers for information carried on, disseminated through, or hosted on their
systems is currently unsettled. Exposure to such liability could require us to
expend substantial resources or discontinue certain product or service
offerings. In addition, increased attention to liability issues, as a result of
lawsuits, legislation and legislative proposals, could adversely affect the
growth of Internet use.

OUR BUSINESS COULD BE MATERIALLY HARMED IF WE DO NOT KEEP PACE WITH RAPID
TECHNOLOGICAL CHANGES.

The communications industry is subject to rapid and significant changes in
technology, customer requirements and customer preferences. The high-speed data
communications industry is in the early stages of development and technologies
available for high speed data communications services are rapidly evolving. We
may not be able to keep pace with technological change. If we fail to keep pace
with these changes, our ability to attract new customers may be impeded and we
may lose existing customers. New technologies could reduce the competitiveness
of our network by reducing the cost or increasing the supply of services that
compete with those we plan to offer. As a result, our most significant future
competitors may be new entrants into the communications services industry.

10
<PAGE> 14

OUR INABILITY TO RETAIN AND ATTRACT KEY MANAGEMENT AND QUALIFIED PERSONNEL COULD
MATERIALLY HARM US.

Our success depends on the continued employment of our senior management
team, including our chief executive officer, Clifford G. Rudolph, and on our
continued ability to attract and retain highly skilled and qualified personnel.
We do not have long-term employment agreements with any of our key employees. In
addition, if Mr. Rudolph ceases to be our chief executive officer, there will be
an event of default under our credit facility and our lenders may declare all
amounts outstanding under the credit facility immediately due and payable.

Competition for qualified employees and personnel in the
telecommunications, data and Internet industries is intense. There are a limited
number of candidates with knowledge of and expertise in these industries. We
cannot assure you that we will be able to hire or retain necessary personnel in
the future.

RISKS RELATED TO OUR INDUSTRY

THE MARKETS FOR VOICE AND DATA COMMUNICATIONS SERVICES ARE HIGHLY COMPETITIVE,
AND WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY.

The communications industry is highly competitive and one of the primary
purposes of the Telecommunications Act of 1996, commonly known as the 1996 Act,
is to foster further competition. In each of our markets, our principal
competitors are established telecommunications companies that are substantially
larger and have greater financial, technical and marketing resources than we do.
These competitors have advantages over us which could impede our ability to
attract new customers and cause us to lose existing customers, including:

- long-standing relationships and brand recognition with customers;

- financial, technical, marketing, personnel and other resources
substantially greater than ours;

- more funds to deploy telecommunications services;

- the potential to lower prices of competitive telecommunications services;
and

- fully-deployed networks.

We also face competition in most markets in which we operate from one or
more integrated communications providers and incumbent local telephone companies
operating fiber optic networks. In our enhanced data services business, we face
competition from incumbent local telephone companies, long distance carriers,
satellite communications providers, Internet service providers and others. In
particular, the market for Internet services is extremely competitive and there
are limited barriers to entry. Many of our competitors have financial, personnel
and other resources significantly greater than ours.

A continuing trend toward business combinations and alliances in the
telecommunications industry may also create significant new or larger
competitors for us. Significant new competitors could also enter our markets as
a result of foreign carriers being allowed to compete in the U.S. market,
technological advances and further deregulation and other regulatory
initiatives.

We believe that various legislative initiatives, including the 1996 Act,
have removed many of the remaining legislative barriers to local exchange
competition. Rules adopted to carry out the provisions of the 1996 Act, however,
remain subject to pending administrative and judicial proceedings that could
materially affect local exchange competition. Under pending legislative and
administrative initiatives, incumbent local telephone companies may be permitted
to:

- reduce their prices because of fewer regulatory restrictions;

- offer selective discount pricing to their customers;

- provide advanced data networks through less-regulated separate
subsidiaries that may be used for data traffic;

11
<PAGE> 15

- eliminate the resale of advanced services;

- provide out-of-region long distance service; and

- limit the network elements required to be provided to competitive
carriers on an unbundled basis.

In addition, while we are currently competing with long distance service
providers including AT&T, WorldCom, Sprint and others in the long distance
market, the 1996 Act permits incumbent local telephone companies to provide long
distance services in the same areas where they now provide local service if
certain criteria are met. Once the incumbent local telephone companies begin to
provide such services, they will be in a position to offer single source local
and long distance service similar to that being offered by us. For example, Bell
Atlantic was recently granted approval to offer long distance services in New
York. Furthermore, through acquisitions, AT&T and WorldCom have entered the
local exchange services market, and other long distance carriers have announced
their intention to enter the local exchange services market.

We cannot predict the number of competitors that will emerge as a result of
existing or new federal and state regulatory or legislative actions, but
increased competition with respect to long distance services and local exchange
services from existing and new entities could limit our market share, drive down
the price of our services or otherwise harm our business.

WE ARE SUBJECT TO FEDERAL, STATE AND LOCAL REGULATION THAT COULD BE CHANGED TO
OUR DETRIMENT.

The 1996 Act provides for significant deregulation of the
telecommunications industry. This statute and the related regulations remain
subject to judicial review and additional rulemaking by the Federal
Communications Commission, making it difficult to predict what effect the
legislation will ultimately have on us.

The regulatory status of telephone service over the Internet is also
uncertain. We cannot predict the outcome of these developments. The FCC has
indicated, for example, that voice telecommunications carried over the Internet
between two telephone sets using the public switched network may be subject to
payment of access charges, universal service support funding and taxation
obligations, while voice telecommunications using computers rather than
telephone sets may not be subject to such obligations. For a more thorough
discussion of the regulatory issues that may affect our business, see
"Business -- Government Regulation."

THE TERMINATION, CANCELLATION OR NON-RENEWAL OF NETWORK AGREEMENTS, LICENSES AND
PERMITS COULD IMPEDE OUR ABILITY TO DO BUSINESS.

We have entered into agreements for rights-of-way, utility pole
attachments, conduits and dark fiber for our fiber optic networks. Although we
do not believe any of these agreements will be canceled in the near future,
cancellation or non-renewal of any of these agreements could materially harm our
business in the relevant city. While the 1996 Act requires utilities such as
telecommunications, gas and electric providers to afford alternative carriers
access to their poles and conduits at reasonable rates on non-discriminatory
terms and conditions, we cannot assure you that these entities will do so under
terms and conditions that we consider fair and reasonable. In addition, local
governments are required to provide non-discriminatory access to public rights
of way. While we have secured licenses and permits from local government
authorities, we cannot assure you we will be able to maintain our existing
franchises, permits and rights or to obtain and maintain the other franchises,
permits and rights needed to implement our business plan on acceptable terms.

12
<PAGE> 16

RISKS RELATED TO THE OFFERING

THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK, AND A PUBLIC MARKET MAY NOT
DEVELOP OR BE SUSTAINED.

Prior to this offering, you could not buy or sell our common stock
publicly. An active public market for our common stock may not develop or be
sustained after this offering, and the market price might fall below the initial
public offering price. The initial public offering price may bear no
relationship to the price at which our common stock will trade upon completion
of this offering. The initial public offering price will be determined based on
negotiations between us and the representatives of the underwriters, based on
factors that may not be indicative of future market performance. See
"Underwriting."

A LIMITED NUMBER OF STOCKHOLDERS WILL CONTINUE TO HAVE SUBSTANTIAL CONTROL OVER
US AFTER THIS OFFERING AND COULD PREVENT STOCKHOLDERS FROM EFFECTING CORPORATE
CHANGES.

We anticipate that our directors and officers, and entities affiliated with
our directors, will, in the aggregate, beneficially own % of our
outstanding common stock following the completion of this offering. These
stockholders would be able to significantly influence all matters requiring
approval by our stockholders, including:

- the election of directors;

- exercise of control over our business and policies; and

- the approval of mergers or other business combination transactions. See
"Principal and Selling Stockholders."

PROVISIONS OF OUR CHARTER DOCUMENTS MAY HAVE ANTI-TAKEOVER EFFECTS THAT COULD
PREVENT A CHANGE IN CORPORATE CONTROL AND HAVE A NEGATIVE IMPACT ON OUR
STOCKHOLDERS.

Provisions of our amended and restated certificate of incorporation, bylaws
and Delaware law could make it more difficult for a third party to acquire us,
even if doing so would be a benefit to our stockholders. See "Description of
Capital Stock."

THERE MAY BE SALES OF A SUBSTANTIAL AMOUNT OF OUR COMMON STOCK AFTER THIS
OFFERING THAT COULD CAUSE OUR STOCK PRICE TO FALL.

Our current stockholders hold a substantial number of shares of our common
stock, which they will be able to sell in the public market in the near future.
All of the shares sold in this offering will be freely tradable. The
remaining 114,682,857 shares outstanding, based on the number of shares
outstanding as of March 31, 2000, are restricted securities as defined in Rule
144 of the Securities Act of 1933. of these shares will be tradable,
subject to certain conditions discussed in "Shares Eligible for Future Sale,"
180 days after the date of this prospectus pursuant to lock-up agreements.
Unless previously released by Salomon Smith Barney Inc., of these
shares will be tradable beginning 180 days after the effective date of this
offering, and the remainder will become freely tradable at various times
thereafter subject to certain conditions described in "Shares Eligible for
Future Sale." Sales of a substantial number of shares of our common stock after
this offering, or market expectations that these sales may occur, could cause
our stock price to fall. In addition, the sale of these shares could impair our
ability to raise capital by selling additional common stock. See "Shares
Eligible for Future Sale."

WE EXPECT TO EXPERIENCE VOLATILITY IN OUR SHARE PRICE WHICH COULD NEGATIVELY
AFFECT YOUR INVESTMENT.

The market price of our common stock may fluctuate significantly in
response to a number of factors, some of which are beyond our control,
including:

- quarterly variations in operating results;

- changes in financial estimates by securities analysts;
13
<PAGE> 17

- any deviations in net revenue or in losses from levels expected by
securities analysts;

- changes in market valuations of integrated communications providers
generally;

- announcements by us or our competitors of new services or of significant
acquisitions, strategic partnerships or joint ventures;

- additions or departures of key personnel;

- future sales of our common stock; and

- trading volume fluctuations.

YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.

The initial public offering price is substantially higher than the book
value per share of our outstanding common stock immediately after the offering.
Accordingly, if you purchase common stock in the offering, you will incur
immediate dilution of $ per share. You will incur further dilution if
outstanding stock options are exercised. See "Dilution."

WE DO NOT INTEND TO PAY DIVIDENDS AND OUR CREDIT FACILITY RESTRICTS OUR ABILITY
TO DO SO.

We have never declared or paid cash dividends on our common stock. For the
foreseeable future, we intend to retain any earnings to finance the development
and expansion of our business, and we do not anticipate paying any cash
dividends on our common stock. Payment of any future dividends on our common
stock will depend upon our earnings and capital requirements, the terms of our
debt facilities and other factors that our board of directors considers
appropriate. Our ability to declare and pay dividends on our common stock is
also currently restricted by covenants in our credit facility.

YOU SHOULD NOT RELY ON THE FORWARD-LOOKING STATEMENTS WE MAKE.

Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "will," expect,"
"anticipate," "believe," "estimate," "plan," "goal" and "continue" or similar
words. You should read statements that contain these words carefully because
they:

- discuss our future expectations;

- contain projections of our future results of operations or of our
financial condition; or

- state other "forward-looking" information.

There may be events in the future that we have not accurately predicted or
that we cannot control. These events may include our ability to implement our
business plan and potential competition, among other things. The risks listed
under "Risk Factors," as well as any cautionary language in this prospectus,
provide examples of risks, uncertainties and events that may cause our actual
results to differ materially from the expectations we describe in our
forward-looking statements.

14
<PAGE> 18

USE OF PROCEEDS

We estimate that we will receive net proceeds from the sale of
the shares of common stock we are selling in this offering of
$ million, or $ million if the underwriters' exercise their
option to purchase additional shares in full, based on an assumed initial public
offering price of $ per share, based on the mid-point of the range of the
estimated initial public offering price and after deducting an assumed
underwriting discount and estimated offering expenses payable by us.

We expect to use the net proceeds from this offering, together with amount
available from our existing cash balances, our credit facility and future cash
flow from on-going operations to:

- fund capital expenditures related to our planned market expansion,
including switch-related equipment, fiber networks, equipment collocated
in incumbent local telephone company central offices, leasehold
improvements, information systems, furniture and fixtures;

- fund the acquisition of other communications providers;

- redeem all of the outstanding shares of our redeemable preferred stock
for an aggregate of approximately $2.5 million; and

- fund working capital, operating losses and other general corporate
purposes.

We currently do not have any definitive understandings or agreements
relating to any material acquisitions. Pending the uses of the net proceeds of
this offering, we intend to invest the net proceeds in interest-bearing,
investment-grade securities, including government securities, which are
permitted investments under our credit facility and which would permit us to be
exempt from regulation under the Investment Company Act of 1940.

DIVIDEND POLICY

We have never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, to operate and expand our
business and do not expect to pay any cash dividends in the foreseeable future.
Future dividends, if any, will be determined by our board of directors and will
depend upon our financial condition, results of operations and capital
expenditures, as well as other factors that our board of directors considers
relevant. Our credit facility limits the payment of dividends and future
financing arrangements are likely to contain similar restrictions.

15
<PAGE> 19

CAPITALIZATION

The following table sets forth our capitalization as of December 31, 1999
on an actual basis and on an as adjusted basis to reflect:

- the issuance of additional shares of Series D preferred stock for
$157.6 million in cash in April 2000;

- conversion of Series A preferred stock and accrued dividends into
common stock and redeemable preferred stock;

- the redemption of all outstanding redeemable preferred stock;

- conversion of Series B, C, and D preferred stock into common stock;

- the cancellation of $4,971,915 in accrued preferred stock dividends;
and

- our receipt of net proceeds from the sale of shares of
common stock in this offering at an assumed initial public offering
price of $ per share, after deducting underwriting discount and
estimated offering expenses.

This information should be read in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations and our financial
statements and notes to those statements appearing elsewhere in this prospectus.

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
------------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Total cash, cash equivalents and short term investments..... $ 20,091 $
========= ========
Long-term debt, net of current portion...................... $ 70,204 $ 70,204
Redeemable preferred stock, no par value.................... -- --
Series A convertible preferred stock, $0.0001 par value..... 2,000 --
Stockholders' equity:
Convertible preferred stock, par value $0.0001:
Series B, C and D...................................... 7.5 --
Common stock, par value $0.0001; 157,300,000 shares
authorized; 4,900,458 shares issued and outstanding,
actual; shares issued and outstanding, as
adjusted............................................... 0.5
Additional paid-in capital................................ 284,891
Series D subscriptions receivable......................... (157,557) --
Deferred compensation..................................... (587) (587)
Accumulated deficit....................................... (30,922) (25,950)
--------- --------
Total stockholders' equity............................. 95,833
---------
Total capitalization................................. $ 168,037 $
========= ========
</TABLE>

16
<PAGE> 20

DILUTION

The pro forma net tangible book value per share of our common stock is the
difference between our tangible assets and our liabilities, divided by the
number of shares of our common stock outstanding after giving effect to the
automatic conversion of all our outstanding shares of preferred stock into
shares of our common stock and the redemption of all outstanding shares of our
redeemable preferred stock upon completion of this offering. For investors in
our common stock, dilution is the per share difference between the $ per
share initial public offering price of our common stock in this offering and the
pro forma net tangible book value of our common stock immediately after
completing this offering. Dilution in this case results from the fact that the
per share offering price of the common stock is substantially in excess of the
per share price paid by some of our current stockholders for our presently
outstanding stock.

Our pro forma net tangible book value at March 31, 2000, was $
million, or $ per share, based on 114,682,857 shares of our common stock
outstanding after giving effect to the conversion of all outstanding shares of
our preferred stock into common stock and the redemption of all outstanding
shares of our redeemable preferred stock upon the closing of this offering.

After giving effect to the sale of the shares of common stock by
us at an assumed initial public offering price of $ per share and after
deducting estimated underwriting discounts and commissions and other estimated
expenses payable by us, our pro forma net tangible book value at March 31, 2000,
would have been $ million, or $ per share. This represents an immediate
increase in the pro forma net tangible book value of $ per share to existing
stockholders and an immediate dilution of $ per share to new investors, or
% of the assumed initial public offering price of $ per share.

The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share at March 31,
2000................................................... $
Increase per share attributable to new investors..........
--------
Pro forma net tangible book value per share after this
offering..................................................
--------
Dilution per share to new investors......................... $
========
</TABLE>

The following table shows on a pro forma basis at March 31, 2000, after
giving effect to the conversion of all outstanding shares of our preferred stock
into an aggregate of shares of common stock upon the closing of this
offering, the number of shares of common stock purchased from us, the total
consideration paid to us and the average price paid per share by existing
stockholders and by new investors purchasing common stock in this offering:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- ------- --------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................. % $ % $
New investors..........................
-------- --- -------- --- --------
Total........................ 100% $ 100% $
======== === ======== === ========
</TABLE>

The computation in the table above assumes no exercise of any stock options
outstanding at March 31, 2000. As of March 31, 2000, there were options
outstanding to purchase a total of shares of common stock at a
weighted average exercise price of $ per share. If any of these options are
exercised, there will be further dilution to new public investors.

17
<PAGE> 21

SELECTED HISTORICAL FINANCIAL AND OPERATING INFORMATION
OF ATG GROUP, INC.

The following table sets forth our selected consolidated financial data for
the periods indicated. The consolidated statement of operations data and other
financial data for the period from inception through December 31, 1998 and for
the year ended December 31, 1999 and the balance sheet data as of the year ended
December 31, 1999 have been derived from our consolidated financial statements
included elsewhere in this prospectus which have been audited by KPMG LLP,
independent auditors, as indicated in their report included elsewhere in this
prospectus. The results of operations for the periods indicated are not
necessarily indicative of the results of operations in the future.

You should read the selected consolidated financial data set forth below in
conjunction with the consolidated financial statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.

<TABLE>
<CAPTION>
ATG GROUP, INC.
-------------------------------------
PERIOD FROM INCEPTION
(JULY 22, 1998) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
--------------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $ -- $ 23,358
Cost of services............................................ -- 16,197
------- ---------
Gross profit.............................................. -- 7,161
------- ---------
Costs and expenses:
Selling, general and administrative....................... 2,498 22,571
Depreciation and amortization............................. 5 4,622
------- ---------
Total costs and expenses............................... 2,503 27,193
------- ---------
Loss from operations........................................ (2,503) (20,032)
Interest expense............................................ -- (3,892)
Interest and other income................................... 111 801
------- ---------
Net loss before taxes....................................... (2,392) (23,123)
Provision for income taxes.................................. (1) (5)
------- ---------
Net loss.................................................... (2,393) (23,128)
Dividends on preferred stock................................ (349) (5,053)
------- ---------
Net loss attributed to common stockholders.................. $(2,742) $ (28,181)
======= =========
Basic loss per share........................................ $ (0.75) $ (7.06)
======= =========
Shares used in computing basic loss per share............... 3,650 3,989
======= =========

OTHER FINANCIAL DATA:
Capital expenditures........................................ $ (394) $ (72,827)
Net cash used in operating activities....................... (1,727) (23,242)
Net cash used in investing activities....................... (394) (141,452)
Net cash provided by financing activities................... 27,015 159,891
EBITDA...................................................... $(2,498) $ (15,410)
</TABLE>

alternative to cash flows from operating activities as a measure of liquidity.
We may calculate EBITDA differently from other companies. For further
information, see our financial statements and related notes contained elsewhere
in this prospectus.

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1998 1999
------- --------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $24,894 $ 20,091
Working capital............................................. 24,233 11,028
Property and equipment, net................................. 389 80,073
Intangibles, net............................................ -- 69,245
Total assets................................................ 25,389 192,387
Long term debt, net of current portion...................... -- 70,204
Stockholders' equity........................................ 22,623 95,833
</TABLE>

19
<PAGE> 23

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

The unaudited pro forma condensed consolidated statement of operations for
the year ended December 31, 1999 gives effect to the acquisition of Shared
Communications as if it had occurred on January 1, 1999.

The effects of the acquisition have been presented using the purchase
method and, accordingly, the purchase price was allocated to the assets acquired
and liabilities assumed based upon our best estimate of their fair value. The
allocation of the purchase price may be subject to further adjustments in
accordance with generally accepted accounting principles. We do not believe that
the final allocation will result in material adjustments to the statement of
operations.

<TABLE>
<CAPTION>
SHARED
COMMUNICATIONS
SERVICES, INC.
ATG GROUP, INC. NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30, PRO FORMA
1999 1999 ADJUSTMENTS AMOUNT
--------------- -------------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue.............................. $ 23,358 $35,683 $(9,008)(a) $ 50,033
Cost of services..................... 16,197 23,613 (5,940)(a) 33,870
-------- ------- ------- --------
Gross profit....................... 7,161 12,070 (3,068) 16,163
-------- ------- ------- --------
Costs and expenses:
Selling, general and
administrative.................. 22,571 9,266 (2,014)(a) 29,823
Depreciation and amortization...... 4,622 810 2,565(b) 7,997
-------- ------- ------- --------
Total costs and expenses........ 27,193 10,076 551 37,820
-------- ------- ------- --------
Income (loss) from operations........ (20,032) 1,994 (3,619) (21,657)
Interest expense..................... (3,892) (150) (5,344)(a) (9,386)
Interest and other income
(expense).......................... 801 (304) (24)(c) 473
-------- ------- ------- --------
Income (loss) before taxes........... (23,123) 1,540 (8,987) (30,570)
Income taxes......................... (5) (556) 556(d) (5)
-------- ------- ------- --------
Net income (loss).................... (23,128) 984 (8,431) (30,575)
Dividends on preferred stock......... (5,053) -- -- (5,053)
-------- ------- ------- --------
Net income (loss) attributed to
common stockholders................ $(28,181) $ 984 $(8,431) $(35,628)
======== ======= ======= ========
Income (loss) per share.............. $ (7.06) $ (8.93)
======== ========
Weighted average shares
outstanding........................ 3,989 3,989
======== ========
</TABLE>

The accompanying notes are an integral part of the financial statements

(a) The financial results of ATG Group, Inc. for the year ended December 31,
1999 include the five months of Shared Communications activity that occurred
after the acquisition. The nine months ended June 30, 1999 results for
Shared Communications are added to the ATG Group, Inc. activity in this pro
forma, which if left unadjusted would result in 14 months of activity for
Shared Communications. In order to present only 12 months of activity for
Shared Communications, we have made pro forma adjustments to revenue, cost
of services, selling, general and administrative expenses and interest and
other income to exclude the two-month period from August 1, 1999 to
September 30, 1999 of Shared Communications that were included in the
consolidated statement of operations of ATG Group, Inc.

(b) Depreciation and amortization expense has been adjusted to reflect the
amortization of the goodwill from the acquisition for 12 months.

20
<PAGE> 24

(c) Interest expense has been adjusted to include: (1) interest at a rate of
10.64% per year on the $70 million of initial borrowings from the credit
facility used for the acquisition; (2) commitment fees of 1.5% on the unused
$90 million revolving credit facility; and (3) amortization of loan
origination costs in each case for a full 12 months.

(d) Pro forma tax provision has been calculated as if the transaction had been
consummated on January 1, 1999 which would have resulted in a net loss for
the company.

21
<PAGE> 25

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

The following discussion of our financial condition and results of
operations should be read in conjunction with "Selected Financial Data" and our
financial statements and the notes to our financial statements included
elsewhere in this prospectus. This discussion contains forward-looking
statements that involve risks and uncertainties. For example, the following
paragraphs contain forward-looking statements: (1) the first, fourth, seventh
and eighth paragraphs of "-- Overview"; (2) the second paragraph of "-- Results
of Operations -- Revenue"; (3) the second paragraph of "-- Results of
Operations -- Selling, General and Administrative Expenses"; (4) the first
paragraph of "-- Results of Operations -- Depreciation and Amortization"; and
(5) the first, third, fifth, sixth, seventh and tenth paragraphs of "-- Results
of Operations -- Liquidity and Capital Resources." Our actual results could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors including the risks described in "Risk Factors" and
elsewhere in this prospectus.

OVERVIEW

From our inception on July 22, 1998 through the end of 1998, our principal
activities consisted of the hiring of management and other key personnel and the
raising of capital. In the first half of 1999, we approved our three initial
markets (Sonoma County, California; Olympia/Tacoma, Washington; and
Salem/Eugene, Oregon) and began making substantial expenditures for the
acquisition of equipment and facilities (including collocation space) and
construction of our networks; the development, acquisition and integration of
back office systems; the negotiation of interconnection agreements; and the
procurement of governmental authorizations. During this period, we also incurred
expenditures of this type to develop additional facilities-based markets.

In July and August of 1999, we commenced facilities-based operations in our
first three markets. We began generating revenue through providing Internet,
local and long distance services to business customers in each of these markets
in August of that year. By the end of 1999, we had approved development of 13
additional facilities-based markets.

On July 30, 1999, we acquired all the outstanding common stock of Shared
Communications Services, Inc. for $83.4 million in cash. Shared Communications
was a local and long distance services provider with operations principally in
Oregon, Washington and Nevada. Shared Communications derived revenue from
reselling local and long distance services that it purchased from incumbent
local telephone companies and a long distance carrier. Shared Communications'
costs of services consisted of payments made for local and long distance
services it purchased from various vendors. A substantial portion of our revenue
to date has been derived from customers acquired in our purchase of Shared
Communications. Over the next several years, we expect to move a substantial
portion of these customers to our own facilities-based network.

On September 23, 1999, we acquired NewComm Net, Inc., a Maryland based
company, for $2 million in shares of our common stock and cash. NewComm Net was
a development stage company in the process of raising capital and obtaining
regulatory approval for building a regional network in the Eastern United
States. Since the acquisition, we have commenced construction of our
facilities-based networks in Montgomery/Frederick Counties, Maryland;
Fairfax/Louden Counties, Virginia; Stamford, Connecticut; Towson, Maryland; and
Nassau County, New York.
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<PAGE> 26

Both acquisitions were accounted for as purchases. As a result, we recorded
$71.2 million in goodwill that will be amortized over 15 years.

During 1999, almost all of our revenue was derived from the resale of local
and long distance services, and only a small portion of our business consisted
of revenue derived from facilities-based services. In addition to opening new
facilities-based markets in 2000, we expect to continue to increase revenue from
the facilities-based markets that were opened in 1999. As of December 31, 1999,
we were serving 15,147 customers with 52,731 lines, including 180 DSL
connections.

We have incurred significant losses and negative cash flow through December
31, 1999, due to the development stage of our operations since inception and as
a result of our acquisitions and integration of facilities-based services.
During the development and construction of a market and until we establish a
sufficient revenue-generating customer base, which we anticipate will take on
the average at least 30 months, we will not achieve positive cash flow from that
market. Because we plan to develop existing markets and expand into additional
markets, we will continue to experience increasing operating losses and negative
cash flow for the foreseeable future. See "Risk Factors -- We have a history of
negative cash flow and may never become profitable."

DEFERRED COMPENSATION

In 1999, we recorded a $587,000 deferred compensation asset in connection
with the issuance of stock options for which the estimated fair market value of
our stock exceeded the exercise price of the options granted. This asset will be
amortized using the straight-line method over the vesting period of the options
beginning with the year ending December 31, 2000.

RESULTS OF OPERATIONS

Revenue

Currently, most of our revenue is derived from the resale of local and long
distance services to customers we acquired from Shared Communications. We have
begun to generate revenue from our facilities-based markets that became
operational in 1999. Our facilities-based markets currently generate monthly
recurring revenue from:

- local calling services;

- long distance services;

- a broad spectrum of Internet services including web hosting, collocation,
private network services, electronic commerce solutions and transport
access;

- high-speed data transport services; and

- access charges, which we earn by connecting our customers to their
selected long distance carrier for outbound calls or by delivering
inbound long distance traffic to our local service customers.

In 1999, our revenue was $23.4 million of which $23 million or 98% resulted
from resale services and $400,000 or 2% from facilities-based services. We
expect to reduce resale services and increase facilities-based services as a
percentage of total revenue by developing new markets and moving Shared
Communications' customers to our facilities. In 1998, we had no revenue as we
were in the development stage.

We recognize revenue as earned. Some of our services are billed in the
month after they are provided. Accrued revenue that has not yet been billed is
recorded as unbilled revenue on our balance sheet. Our right to compensation
from other carriers for calls terminated on our network, and our obligation to
pay other carriers for calls by our customers terminated on their networks,
commonly referred to as reciprocal compensation, are subject to a number of
uncertainties. For that reason, we do not recognize these revenues or expenses
until paid. In certain cases, we collect installation charges from our customers
to offset the costs of initiating service. We recognize these charges in the
period service begins. We recognize as resale revenues the amounts billed to our
customers.

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<PAGE> 27

Cost of Services

Currently, most of our cost of services is for payment to local and long
distance carriers for services purchased by us and resold to customers we
acquired from Shared Communications. In the second half of 1999, we began
incurring costs associated with our facilities-based services. Costs of services
for our facilities-based operations currently include:

- leasing lines from the incumbent local telephone companies to connect our
customers to our network and related usage charges;

- purchasing long distance minutes for resale to our customers; and

- non-recurring charges such as installation.

Cost of services for the year ended December 31, 1999 was $16.2 million of
which $15.8 million related to resale services and $400,000 related to
facilities-based services. For 1998, we did not incur any cost of services as we
were not providing any telecommunications services.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses include the cost of
personnel, selling and marketing costs, customer service and corporate
administration. These expenses also include network costs related to connecting
our Internet infrastructure to the national Internet backbone, leases of
collocation space, interconnecting our network to other regional and national
telecommunication service providers, network monitoring, and connecting our
markets to each other. At the end of 1999, we had 370 employees, including 158
sales and customer service personnel.

Selling, general and administrative expenses were $22.6 million for the
year ended December 31, 1999. We expect that these 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.

Selling, general and administrative expenses were $2.5 million for 1998,
and were for expenses associated with starting our business.

Depreciation and Amortization

Our depreciation and amortization expense includes depreciation of switch
related equipment, fiber networks, equipment collocated in incumbent local
telephone company central offices, leasehold improvements, information systems
and furniture and fixtures. Our acquisitions of Shared Communications and
NewComm Net were accounted for using the purchase method of accounting. The
portion of the purchase price equal to the fair value of the net assets acquired
was allocated to those assets. The balance, $71.2 million of goodwill, will be
amortized over a 15 year period. We expect that our depreciation and
amortization expense will increase as we continue to make capital expenditures,
acquire long-term rights to telecommunications facilities and acquire other
businesses. Depreciation and amortization was $4.6 million for 1999, and $4,000
for 1998.

Income Taxes

We have not generated any taxable income to date and do not expect to
generate taxable income in the next few years. Provision for income taxes to
date consists of minimum tax payments. Use of our net operating loss
carryforwards, which begin to expire in 2018, may be subject to limitations
under Section 382 of the Internal Revenue Code of 1986, as amended. Due to this
uncertainty, we have not recorded any deferred tax asset.

Liquidity and Capital Resources

Capital Requirements. We intend to increase our coverage beyond our
existing markets by expanding our services to a total of approximately 28
markets by the end of 2001. The implementation of this plan

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<PAGE> 28

will require significant capital expenditures, a substantial portion of which
will be incurred before any related revenue from our new markets will be
realized. These expenditures, together with associated operating expenses, will
result in substantial negative operating cash flow and substantial net operating
losses for the foreseeable future, including at least 2000 and 2001. Although we
believe that our cost estimates and the scope and timing of our buildout are
reasonable, we cannot assure you that the actual costs or the timing of the
expenditures, or that the scope and the timing of our buildout, will be
consistent with our current estimates.

Our current financing plan is based on obtaining committed funding sources
for total capital expenditures, operating expenses and debt service obligations
associated with our current business plan until our operations generate
sufficient cash to fund these requirements.

Capital expenditures were $394,000 in 1998 and $72.8 million in 1999.
Capital expenditures in 1999 consist of switch related equipment, fiber
networks, equipment collocated in incumbent local telephone company central
offices, leasehold improvements, information systems and furniture and fixtures.
We estimate that our capital expenditure requirements for the year 2000 will be
$177 million.

Net cash used in our investing activities was $394,000 for 1998 and $141.5
million for 1999. The 1999 amount was attributable to $55.1 million in cash
capital expenditure payments, $83.4 million for the acquisition of Shared
Communications and NewComm Net, and $3.0 million for an investment in a company
airplane.

We estimate that we will need $177 million for the year ended December 31,
2000 and an additional $322 million from January 2001 through the end of 2003
for capital expenditures and to cover operating losses and working capital to
complete our 15 currently approved markets plus an additional 13 average-sized
markets. We believe these needs will be fully covered upon completion of this
offering, with cash on hand, borrowing under our credit facility described
below, and anticipated cash flows from future operations. In order to enter
additional markets, we will require substantially more capital.

The actual amount and timing of our future capital requirements may differ
materially from our estimates as a result of the demand for our services and
regulatory, technological and competitive developments, including additional
market developments and new opportunities, in the industry and other factors
including any acquisitions which we undertake. We also expect that we will
require additional financing, or require financing sooner than anticipated, if
our development plans or projections change or prove to be inaccurate or if we
alter our roll-out plan. We may also require additional financing in order to
take advantage of unanticipated opportunities, to effect acquisitions of
businesses, to develop new services or to otherwise respond to changing business
conditions or unanticipated competitive pressures. Sources of additional
financing may include commercial bank borrowings, vendor financing or the
private or public sale of equity or debt securities. We intend to seek
additional debt and equity financing in the future, depending on market
conditions. See "Risk Factors -- Our future growth will require significant
capital and if we do not obtain needed financing our ability to implement our
business strategy could be impaired."

Cash Flows. We have incurred significant operating and net losses since
our inception. We expect to continue to experience increasing operating losses
and negative cash flow as we expand our operations and build our customer base.
Net cash provided by financing activities was $27.0 million for the period from
inception through December 31, 1998 and $159.9 million for the year ended
December 31, 1999. Net cash provided by financing activities for the period from
inception through December 31, 1998 was related to equity contributions. Net
cash provided by financing activities for the year ended December 31, 1999 was
related to $70.0 million of borrowings under the credit facility, $94.9 million
of equity contributions, $5.1 million of payments of financing costs and a
$164,000 increase in the liability associated with a non-compete covenant.

Equity Financing. Prior to this offering, a substantial portion of our
financial needs was met through the private sale of equity. Our initial
financing consisted of $102.2 million of private equity. During 1999, the
aggregate amount of committed capital increased by $177.9 million to a total of
$280.1 million.

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<PAGE> 29

Credit Facility. In May 1999, we established a $100 million credit
facility with a syndicate of banks and other lenders. The credit facility was
revised in July 1999 to provide for loans in an aggregate amount of $160 million
consisting of a $70 million term loan facility and a $90 million revolving loan
facility. The credit facility, which is secured by liens on substantially all of
our and our subsidiaries' assets, contains financing and operating covenants and
provisions. The total amount of allowable borrowings under the credit facility
is determined by our borrowing base which is based on the amount of capitalized
telecommunications equipment in existing and developing markets. As of December
31, 1999, our total borrowing base availability was $112.3 million, of which $70
million had been borrowed under the term loan facility. The interest rate on the
term loan facility is variable and was 10.64% as of December 31, 1999. Amounts
borrowed under the term loan facility are required to be paid quarterly
beginning on September 30, 2003 and continuing through June 30, 2008. Voluntary
prepayments made prior to July 31, 2001 would be subject to a prepayment penalty
of 1% of the amount of the prepayment. There were no amounts outstanding under
the revolving loan facility as of December 31, 1999. The revolving loan facility
is available until July 30, 2007, but the revolving loan availability begins
reducing incrementally on a quarterly basis on September 30, 2003. We are
required to pay a facility fee each calendar quarter equal to 1.5% of the unused
portion of the available revolving loan facility.

We recently received a commitment from our existing lenders to increase the
total amounts of loans available under our credit facility to $280 million. We
expect to enter into definitive documentation with respect this revised credit
facility prior to the closing of this offering.

Other Long Term Debt. As of December 31, 1999, other long-term debt
outstanding consisted of capital leases of $204,000.

YEAR 2000 ISSUE

While we have not experienced any Year 2000 problems to date and are not
aware of any material issues for our suppliers, we are continuing to evaluate
and determine whether our significant suppliers are in compliance or have
appropriate plans to remedy any Year 2000 issue that has not been discovered. We
cannot assure you that another company's failure to successfully convert to a
Year 2000 compliant system, or that another company's conversion to a system
incompatible with our systems, would not have a material adverse impact on our
operations.

FUTURE ACCOUNTING CHANGES

In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards, SFAS, No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which was amended by SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral
of the Effective Date of FASB Statement No. 133, an amendment of FASB Statement
No. 133," and is effective on a prospective basis for interim periods and fiscal
years beginning January 1, 2001. This Statement establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging securities. We have not, in the
past, used in any material respect, financial instruments as hedges against
financial and currency risks or for trading. However, as we expand our
operations, we may begin to use various financial instruments, including
derivative financial instruments, in the ordinary course of business, for
purposes other than trading. These instruments could include letters of credit,
guarantees of debt and interest rate swap agreements. We do not intend to use
derivative financial instruments for speculative purposes. Interest rate swap
agreements would be used to reduce our exposure to risks associated with
interest rate fluctuations and, subject to limitations and conditions, are
required by our credit facility. By their nature, these instruments would
involve risk, including the risk of nonperformance by counter parties, and our
maximum potential loss may exceed the amount recognized in our balance sheet. We
would attempt to control our exposure to counter party credit risk through
monitoring procedures and by entering into multiple contracts. To the extent we
begin to enter into such transactions in the future, we will adopt the
Statement's disclosure requirements in the financial statements for the year
ending December 31, 2001.

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<PAGE> 30

BUSINESS

COMPANY OVERVIEW

We were founded in July 1998 by a core group of experienced communications
executives led by Clifford G. Rudolph, the former President of Brooks Fiber
Properties Eastern/Western Divisions, to aggressively pursue this specific
market opportunity. To date we have raised $280 million in equity financing from
a group of investors that include entities affiliated with: Alta Communications,
AT&T Ventures, Centennial Fund, L.P., First Union Capital Markets, J.P. Morgan
Capital Corporation, Norwest Venture Partners, Telecom Partners and Texas
Pacific Group.

OUR TARGET MARKET OPPORTUNITY

Significant and growing demand for Internet, data and voice services

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<PAGE> 31

demand for e-mail, web hosting services, e-commerce, collaborative workflow and
real-time video services and applications.

Our target markets are attractive and underserved

Our strategy is to focus on selected markets where limited facilities-based
competition exists, and where there is a significant concentration of potential
high volume communications and Internet customers. We target clusters of third
and fourth tier cities and small and medium-sized businesses in those cities. We
believe that in recent years the incumbent local telephone companies and
national Internet service providers have focused their efforts on larger
markets, leaving our target markets with limited service alternatives. As a
result, we believe there is market demand for alternative service providers as
businesses seek competitive pricing, flexible and responsible local service,
greater reliability and security. As an early entrant to our markets, we believe
that we are well positioned to effectively market our bundled suite of products
and services.

Customer demand for advanced services

Today, many small and medium-sized businesses are seeking technologically
sophisticated and cost-effective communications solutions to allow them to take
advantage of Internet and advanced networking applications. Businesses are
providing many of their employees with the ability to work from home and in
other remote locations to improve productivity and reduce operating costs. In
addition, in order to participate in the increasing business opportunities as a
result of the Internet, many small and medium-sized businesses are establishing
web sites through which they can market and sell their products and services. To
meet this demand, we are deploying data-centric networks that are targeted to
address the needs of small and medium-sized businesses. These networks are
optimized to offer Internet, data and voice solutions to our customers,
including digital subscriber lines, or DSL, dedicated data communications
circuits such as T-1 and T-3 connections, collocation services, web hosting and
private network services.

BUSINESS STRATEGY

We are pursuing an aggressive growth strategy to become the provider of
choice to small and medium-sized businesses in our target markets throughout the
United States, offering one-stop, bundled Internet and communications solutions.
To meet our goal, we have developed the following business strategy:

Bring services to underserved markets

The competitive dynamics in third and fourth tier cities are often
favorable because they generally have fewer communications resellers,
competitive carriers and Internet service providers than larger cities. In
addition, we believe the incumbent local telephone companies have generally
focused their efforts on larger markets, often removing local sales and customer
service personnel, neglecting local installation and repair capabilities and
failing to invest in new technologies and upgraded infrastructure in these
markets. As a result, we believe our target markets are underserved,
particularly with respect to broadband Internet and data services.

Target small and medium-sized businesses

We target small and medium-sized businesses because we believe:

- their increasing use of the Internet and data services creates a demand
for our high speed data services;

- they often lack the resources and expertise to address their Internet and
communications needs in-house and therefore will benefit from a single
source provider; and

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<PAGE> 32

- they have generally been underserved by incumbent local telephone
companies and national Internet service providers which we believe have
concentrated on servicing larger businesses, leaving small and
medium-sized businesses with limited alternatives to costly products that
were not designed or packaged to meet their needs.

Advances in technology have enabled us to provide these customers with a
range of sophisticated communications services at an attractive price.

Provide bundled services with a single point of contact

We provide our small and medium-sized business customers with a fully
integrated bundle of services, billed on a single, easy to understand, monthly
invoice. We believe our single point of contact for sales and service of
multiple products is particularly important to small and medium-sized businesses
because it eliminates the need to manage multiple vendors. We believe that
providing one-stop communications services, including Internet, data, voice and
other value-added services enables us to better meet the needs of our customers,
capture a larger portion of our customers' communications expenditures, enhance
customer retention and rapidly increase penetration in our target markets.

Employ a local approach to sales and customer service

We believe a local focus will provide a competitive advantage in customer
acquisition and retention in each market. We have established high customer
visibility within each of our markets by maintaining prominent, centrally
located retail offices. We have dedicated sales, customer service and
installation personnel in each market to respond quickly to the needs of our
customers. We believe that a local presence facilitates and expedites our
network buildout in a market because we are able to leverage our relationships
with regulatory and planning authorities and potential providers of
rights-of-way. We demonstrate our commitment to the community by hiring staff
and purchasing products and services locally while encouraging our employees to
participate actively in the community.

Build capital efficient local networks

We have developed a flexible, scalable and capital efficient network
buildout strategy allows us to enter each of our target markets quickly. We
typically purchase and install our own voice and data switches and Internet
equipment at our market hub site and connect them to the incumbent local
telephone company's central offices within the market using a leased fiber
backbone where available. Through this strategy, we reduce our initial capital
expenditures and reduce the time it takes to enter and expand in a geographic
market.

From the outset, we have specifically designed our networks to efficiently
provide integrated service offerings using the most advanced technology. We
believe that many existing networks must be upgraded at substantial cost to
provide enhanced services comparable to those we offer. Our networks are further
described under the caption "Network Architecture" below.

Leverage our state-of-the-art, scalable operating support and back office
systems

To better serve our customers and manage our business, we are developing
state-of-the-art, scalable operating support systems designed to integrate and
automate all critical components of our operations. Our management team is
developing, acquiring and integrating "best of breed" back office systems that
we believe will provide significant competitive advantages in terms of
efficiency, capacity to process large order volumes and the ability to provide
exceptional customer service. Our integrated system is based on "open" standards
which will allow information data sources to be shared between each of the
various system components, such as provisioning and billing, and the smooth
integration of new and upgraded hardware and software. Our operating support
systems are further described under the caption "Information Technology and
Operating Support Systems."

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<PAGE> 33

Leverage our proven management team

We have brought together a seasoned team of executives with extensive
communications, Internet and data services and regulatory experience. Our senior
management team has extensive operating experience with leading communications
companies such as: AT&T, WorldCom, Brooks Fiber Properties, Verio and Northern
Telecom. Our senior management team has had significant experience with all
facets of our current growth plan, from the start-up phase through the operation
of a mature communications company. Their experience complements that of our
regional management teams, who are familiar with the local communities and
businesses that we serve. We believe that the quality and experience of our
current management team are critical factors in the implementation of our growth
strategy and will attract additional management personnel as we expand.

Accelerate growth through strategic acquisitions

We have completed three acquisitions since the beginning of 1999 for a
total consideration of $87.4 million in cash and stock. Two of these
acquisitions were local and long distance service providers and the other
acquisition was an Internet service provider. We intend to use strategic
acquisitions to:

- accelerate our entry into individual markets or regions;

- develop our national footprint;

- accelerate our access to customers in existing or target markets; and

- provide management and other skilled employees to support our growth.

We seek acquisition candidates that are facilities-based or whose customers
can be cost-effectively brought onto our facilities-based networks. We currently
do not have any definitive understandings or agreements relating to any material
acquisitions.

OUR TARGET MARKETS

We target markets in the United States which typically consist of clusters
of third and fourth tier cities. These markets have populations between 100,000
and 750,000 people and usually have between 50,000 and 200,000 business access
lines. We select our markets from among the approximately 150 third tier and
1,150 fourth tier cities in the United States. In some cases, our selected
markets consist of the underserved outlying suburbs of large cities. We expect
to have our first 28 markets operational or under construction by the end of
2001.

Market Selection Process

We believe that careful selection of our target markets through a thorough
review and due diligence process results in faster market development, reduced
installation and operational risks and better financial results. As part of this
process, we evaluate demographic, economic, competitive and demand
characteristics of each market. Experienced teams of engineers, facility
planners and general management visit markets and conduct comprehensive due
diligence in order to gather and confirm market data. Our selection process also
includes personal interviews with leading business and civic leaders and
interviews with and assessment of local Internet service providers and
telecommunications resellers. We consider the following criteria important in
our selection process:

- a minimum of 50,000 business lines;

- a strong desire and demand for Internet services and greater bandwidth;

- a concentration of high growth, information dependent businesses;

- a pro-business legislative environment;

- market demand for an alternative provider of bundled communications
services, including Internet, local and long distance;
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<PAGE> 34

- little emphasis by competitors to actively market bundled communications
services to small and medium-sized businesses; and

- the presence of few other facilities-based competitive carriers.

If a market satisfies our preliminary review, then a complete business case
is submitted to our board of directors for approval.

Operational Markets

As of March 31, 2000, we were providing facilities-based or resale
communications services to our customers in the markets shown in the table
below. In four of these markets we are providing services solely through resale
lines while our facilities-based networks are under construction.

<TABLE>
<CAPTION>
ESTIMATED
TOTAL FACILITY
ESTIMATED BUSINESS BASED RESALE
POPULATION ACCESS INITIAL LINES IN LINES IN COLLOCATIONS
MARKET OF MARKET(1) LINES(2) SERVICE DATE SERVICE SERVICE IN SERVICE
- ------ ------------ --------- -------------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
WESTERN DIVISION
Olympia/Tacoma,
Washington.................... 278,700 78,864 August 1999 1,928 3,688 5
Salem/Eugene, Oregon............ 304,000 64,033 August 1999 1,227 19,051 3
Sonoma County, California....... 215,400 67,736 July 1999 5,273 10 4
Reno, Nevada.................... 275,000 63,916 February 2000 130 2,592 5
Portland, Oregon................ 491,000 114,875 August 1999 -- 5,301 --
Everett/Bellingham,
Washington.................... 166,500 52,364 August 1999 -- 1,798 --
Other Oregon(3)................. 283,400 92,732 August 1999 -- 14,675 5
EASTERN DIVISION
Montgomery/Frederick
Counties, Maryland............ 209,500 135,297 October 1999 -- 1,520 --
--------- ------- ----- ------ --
Total................. 2,223,500 669,817 8,558 48,635 22
</TABLE>

- ---------------

(1) Source: Claritas Connect Database and Rand McNally Commercial Atlas and
Marketing Guide for 1999

(2) Source: Cypress Consulting

(3) Includes numerous cities throughout Oregon where Shared Communications
offered services

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<PAGE> 35

Markets under Construction

As of March 31, 2000, we were constructing switching facilities, installing
co-located equipment and building out our networks in the following nine
markets:

<TABLE>
<CAPTION>
ESTIMATED
ESTIMATED TOTAL BUSINESS RESALE
MARKET ACCESS INITIAL LINES IN COLLOCATIONS
MARKET POPULATION(1) LINES(2) SERVICE DATE SERVICE PLANNED
- ------ ------------- -------------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C>
WESTERN DIVISION
Portland, Oregon............. 491,000 114,875 Q2 2000 5,301 2
Everett/Bellingham,
Washington................. 166,500 52,364 Q3 2000 1,798 6
Marin/Napa Counties,
California................. 184,700 81,220 Q3 2000 -- 7
Other Oregon(3).............. 283,400 92,732 Various 2000 14,675 10

EASTERN DIVISION
Fairfax/Loudon, Northern
Virginia................... 138,900 117,058 Q2 2000 -- 6
Montgomery/Frederick
Counties, Maryland......... 209,500 135,297 Q2 2000 1,520 7
Stamford, Connecticut........ 239,000 59,941 Q3 2000 -- 3
Towson, Maryland............. 77,700 73,580 Q3 2000 -- 4
Nassau County, New York...... 320,600 205,410 Q4 2000 -- 12
--------- ------- ------ --
2,111,300 932,477 23,294 57
</TABLE>

- ---------------

(1) Source: Claritas Connect Database and Rand McNally Commercial Atlas and
Marketing Guide for 1999
(2) Source: Cypress Consulting
(3) Includes numerous cities throughout Oregon where Shared Communications
offered services

Markets under Development

We are developing plans to construct switching facilities consisting of
both data and voice switching platforms in the markets shown in the table below.
The business plans for these markets have been approved by our board of
directors and our anticipated buildout schedule is set forth in the table. We
are in the process of evaluating additional markets and expect to identify and
approve an additional 12 markets by the end of 2000. Proceeds of this offering
along with our existing capital resources are expected to provide funding for
these additional markets.

<TABLE>
<CAPTION>
ESTIMATED ESTIMATED ESTIMATED
POPULATION TOTAL BUSINESS INITIAL COLLOCATIONS
MARKET OF MARKET(1) ACCESS LINES(2) SERVICE DATE PLANNED
- ------ ------------ --------------- ------------ ------------
<S> <C> <C> <C> <C>
WESTERN DIVISION
Walnut Creek/Pleasanton, California..... 461,800 159,797 Q1 2001 11
Northern Colorado....................... 319,900 80,625 Q1 2001 7
EASTERN DIVISION
Mercer County, New Jersey............... 150,700 96,945 Q1 2001 5
------- ------- --
932,400 337,367 23
</TABLE>

- ---------------
(1) Source: Claritas Connect Database and Rand McNally Commercial Atlas and
Marketing Guide for 1999
(2) Source: Cypress Consulting

LINES INSTALLED ON OUR FACILITIES-BASED NETWORK

We expect that the number of customer lines in service, DSL other high
speed lines and voice lines, will accelerate rapidly as we enter additional
markets and further develop existing markets. The tables below show the numbers
of lines installed and in service on our facilities-based network at the end of
each of our first three operational fiscal quarters.

32
<PAGE> 36

Customer DSL Connections Installed (End of Period)

<TABLE>
<CAPTION>
MARKET Q3 1999 Q4 1999 Q1 2000
- ------ ------- ------- -------
<S> <C> <C> <C>
WESTERN REGION
Olympia/Tacoma, Washington.................................. 10 41 98
Salem/Eugene, Oregon........................................ -- 13 50
Sonoma County, California................................... 28 126 274
Reno, Nevada................................................ -- -- 1
-- --- ---
38 180 423
</TABLE>

Customer Voice Lines Installed (End of Period)

<TABLE>
<CAPTION>
MARKET Q3 1999 Q4 1999 Q1 2000
- ------ ------- ------- -------
<S> <C> <C> <C>
WESTERN REGION
Olympia/Tacoma, Washington.................................. 203 1,352 1,928
Salem/Eugene, Oregon........................................ 37 356 1,227
Sonoma County, California................................... 825 4,051 5,273
Reno, Nevada................................................ -- -- 130
----- ----- -----
1,065 5,759 8,558
</TABLE>

OUR INTEGRATED COMMUNICATIONS SERVICES

We believe there is substantial demand among small and medium-sized
business customers in our target markets for an integrated package of
communications services. Many of the customers we target have not previously had
the opportunity to purchase bundled services from a single provider and we
believe they will prefer a single source for all of their communications
requirements. We offer our customers a broad portfolio of individual services
that can be bundled into customized communications solutions. These products
include:

High Speed Internet and Data Access and Enhanced Internet Services. We
offer comprehensive solutions for our customers' Internet and data needs. Along
with dial up Internet access, e-mail services, domain name hosting, video
streaming, mailing list capability, news group access, and other value-added
services, we offer and support:

- DSL Services. Utilizing digital subscriber line technology, we provide
high speed Internet access, data communications and private voice and
data communications to our targeted small and medium-sized business
customers at rates we believe are competitive when compared to the cost
and performance of other available data service offerings. Our DSL
services offer the following key elements:

- High Bandwidth. For a single price, we offer our customers the
fastest speed for data transfer that is available at their physical
location, ranging from 144 kilobits per second to 8 megabits per
second;

- Voice-Over DSL. Our customers may order multiple voice lines over a
single copper transmission line;

- Always On. Our customers have a 24 hours a day, 7 days a week
connection;

- Security. Our state-of-the-art network is designed to provide
security and privacy for the safe and secure transmission of sensitive
information and applications; and

- No Usage Fees. Our customers may use their DSL connections for any
period of time without per minute usage charges.

- Collocation Service. Our server collocation facilities provide our
customers with a cost-effective means to co-locate their own hardware
within our switching/data center, benefiting from our plant security and
network connections. Customers also receive 24-hour physical and remote
access to

33
<PAGE> 37

their equipment. Our collocation facilities offer additional specialized
features, including precise environmental control and monitoring,
dedicated network bandwidth options, dedicated security options,
monitoring by our Internet network operations center, lockable
full-height cabinets and special rates on our Internet services.

- Web Hosting. We offer a variety of web hosting services to provide our
customers with a high quality and highly reliable Internet presence
without the customer needing to make an investment in infrastructure.
These services include dedicated web hosting, shared web hosting and
equipment collocation. We have based our offering on industry standards
and are able to quickly and cost-effectively upgrade, configure, and
implement the new hardware and software necessary to accommodate our
customers' growing needs for higher speeds and capacity.

- Electronic Commerce Solutions. We currently offer e-commerce capability
to our customers by providing secure shopping cart support and
transaction processing capability. The e-commerce solutions are packaged
according to the enhanced e-commerce hosting environments, as well as to
make use of third party applications, such as online catalogs.

- Private Network Services. Our private network services combine our DSL
and dedicated T-1 line access services with our own private network
equipment to provide customers with high-speed and secure connections to
their corporate local area network and the Internet. This flexible and
cost-effective solution will support both telecommuters and site-to-site
connections.

- Virtual Private Network Services. Many companies today have private data
communication networks, which are often referred to as wide area
networks, built on expensive leased lines, to transfer proprietary data
between office locations. The Internet offers companies a cost-effective
replacement alternative to these networks through virtual private
networks, which are meant to provide secure transmission of voice and
data through the Internet. We currently offer our customers a number of
virtual private network solutions and we are always evaluating additional
products to meet the needs of our customers.

Local Voice Services. In addition to providing traditional local switched
services that include local dial tone, emergency 911, directory assistance and
operator assisted calling, we also offer comprehensive and enhanced solutions
for our customers' local voice needs, including:

- Enhanced Services. We supplement our line of local switched services by
including conference calling, call waiting, voice mail, call forwarding,
caller identification and other advanced local features;

- Centrex Lines. We offer feature-rich phone lines and customized
intra-office dialing plans which allow customers to manage their own
phone services internally without investing in a costly private branch
exchange telephone system; and

- Dedicated Access Lines. We offer private line, dedicated access to our
customers who require high capacity transmission connections to
interexchange carriers and to interconnect their own networks.

Long Distance Services. We offer a full range of competitive domestic and
international calling services, including "1+" outbound calling, dedicated
carrier access, inbound toll free service, and such complementary services as
calling cards with operator assistance.

Gateway Carrier Wholesale Services. Currently, all call traffic
originating from within and around major metropolitan cities near our target
markets and terminating within our target markets is routed through the
incumbent local telephone company. The incumbent local telephone company charges
a per minute terminating access charge to all carriers that wish to transport
and terminate a telephone call within a given region, for example, a call from
San Francisco to Santa Rosa. We are planning to optimize the utilization of our
network by offering to terminate competitive carriers' calls from first and
second tier cities adjacent to our regional markets for a reduced termination
charge.

34
<PAGE> 38

MARKETING

We strive to create an identity under the ATG brand name by positioning
ourselves within our target markets as the local Internet and telecommunications
provider of choice. Prior to entering new communities, we pre-market our
products and services to build brand awareness and develop local relationships.
Upon entering a market, we hire staff and purchase products and services locally
and encourage our employees to participate in the community. We also establish
high consumer visibility within each of our target markets by maintaining
prominent, centrally located retail offices. We believe that this visibility and
our local approach create significant business opportunities. Local advertising
and public relations campaigns also contribute to our visibility in each market.
We run print and radio advertisements and sponsor a variety of community
functions. As part of this local commitment, we make donations to selected
charitable organizations.

SALES, CUSTOMER SERVICE AND TECHNICAL SUPPORT

To support our locally based business model, we employ local sales,
customer service and technical support personnel in each market. We maintain
highly visible retail offices in each market and encourage existing and
prospective customers to visit and receive demonstrations of our advanced
Internet, data and voice communications services.

Sales

We employ a highly trained direct sales force in each market to sell our
integrated communications services directly to our target customers. As of March
31, 2000, we had 73 sales personnel located in 23 sales offices to support our
direct sales efforts.

Each direct salesperson has a defined territory with a target customer list
comprised of 200-300 prospects. We typically obtain a letter of agency from the
customer that allows us access to the customer's phone bills and also validates
a strong interest in our services on the part of the customer. Our sales person
uses this information to evaluate which products and services should be offered
to the customer and to illustrate the potential savings that a customer may
realize. Each sales person receives a base salary and participates in a
commission plan which provides additional incentives for sales that include
multiple products and multi-year agreements. Our customers enter into service
contracts up to five years in length. To date, our facilities-based customer
contracts have a weighted average contract length of 3.1 years and 71% of our
facilities-based customers have purchased two or more of our services.

Currently, we employ between four and six direct sales persons in each of
our markets. Each sales person sells our complete product line and is supported
by a team consisting of a sales engineer for technical assistance, an Internet
product specialist, a customer service representative for follow-on account and
billing coordination and a sales manager for ongoing coaching and development.
Our sales managers may also serve as the direct point of contact for businesses
with 50 or more lines. Sales to businesses with one to three lines and to
telecommuter and home office customers are generally handled by our local
telemarketing sales force and customer service staff.

The market for hiring qualified local sales representatives is competitive.
However, we believe that we will be able to continue to attract and retain
highly qualified sales and support personnel by offering them the opportunity
to:

- participate in our stock option and employee stock purchase plans;

- work with an experienced and proven management team in building a
developing, entrepreneurial company;

- participate in an attractive, results-oriented compensation package; and

- market a comprehensive set of competitive products and services.

35
<PAGE> 39

Customer Service

We believe that customer service has become a critical element in
attracting and retaining customers in the communications industry. Accordingly,
we seek to differentiate and market ourselves through our commitment to customer
service and assign a dedicated representative to manage the relationship with
each customer. We provide customer service 24 hours per day, 7 days per week
through a combination of our local offices, the Lucent Network Knowledge Center,
our divisional customer service centers and our national Internet network
operations center. Our customer service personnel participate in extensive
training in all aspects of communications services we offer and receive ongoing
mentoring so that they are prepared to sell additional services, discuss and
resolve billing questions, provide product and service descriptions and assist
in the installation or service repair process. The compensation of customer
support personnel is in part dependent upon the retention rate of their
respective accounts.

We are currently establishing quality assurance procedures to monitor and
measure the quality and timeliness of customer interaction. We are also
developing a call distribution system that automatically monitors pick-up times
for incoming calls, length of calls and other support information.

Our customer support staff utilizes a sophisticated operating support
system to access all customer information including contact information,
customer rates, trouble ticket systems, accounts receivable and billing history.
In addition, we utilize a line ordering system that maintains a complete history
of a customer's line ordering and allows real-time access to information
concerning each transaction with the incumbent local telephone company or other
carrier. We believe that our operating support system will enhance the
productivity of our customer service personnel, reduce our response time and
enable our customer service representatives to become "solution providers",
allowing single-call resolution of most customer inquiries.

In order to address customer service issues in a timely manner, our
operating support system has a trouble ticket function that allows us to route
all trouble tickets directly to our customer service personnel. This system
allows us to electronically monitor the steps being taken to resolve a trouble
ticket. We believe that our ability to track and resolve trouble events and keep
both the customer and the customer service representative informed of its status
will provide us with a strategic advantage.

If a customer has an inquiry with respect to an invoice, our operating
support system will enable the customer service representative to view an
identical image of that invoice and promptly take any necessary corrective
action. In addition, we are also developing an Internet based system to allow
our customers to access their account information and interact with our customer
service representatives on a real-time basis over the Internet. We expect this
system to be available by the fourth quarter of 2000.

As of March 31, 2000, we served 15,460 customers with 57,616
facilities-based and resale access lines including 423 DSL connections. We
employed 89 people in customer service and anticipate that we will continue to
hire additional service personnel as the size of our customer base increases.

Technical Support

The local technical support operations staff includes experienced switch,
fiber transmission, data communications and installation/repair technicians,
many of whom were recruited from the local incumbent phone company or other
telecommunications service providers. This team of professionals installs,
operates and maintains all of the network equipment in a market, installs and,
when necessary, repairs, the Internet, data and voice communications products
that we offer. This local staff may also utilize our division-based technical
staff as well as any equipment vendors' national support service organizations
as they require additional resources.

NETWORK ARCHITECTURE

We have developed a scalable and flexible network architecture that allows
us to use rapidly evolving telecommunications technology as a competitive
advantage. We employ a "hub and spoke" architecture -- typically a "hub" third
tier city interconnected by "spokes" to adjacent third and fourth tier cities
36
<PAGE> 40

- -- which enables us to reach our entire customer base without building a
connection from each customer directly to our "hub" where our switches are
located. In most cases, we intend to design our capital efficient networks to
allow us to reach more than 90% of the business lines in our markets.

[GRAPHIC]
A graphic depicting three laterally positioned rectangular boxes. The left
rectangle is labeled "ATG Hub City" and subtitled "ATG Central Office". The
center rectangle is labeled "Hub City Incumbent Local Telephone Company Central
Office Collocation". The right rectangle is labeled "ATG Spoke City" and is
subtitled "Incumbent Local Telephone Company Central Office". Inside each
rectangle is a diagram with three small boxes and a number of arrows. The left
rectangle is connected to the center rectangle by a thick loop labeled "Fiber
Optic Ring" and the center rectangle is connected to the right rectangle by a
thick loop labeled "Leased/Owned Fiber Backbone". The loops intersect and
terminate on the top and bottom of an inside box labeled "Optical Interface
Equipment" in each of the left, center and right rectangular boxes.
The left rectangle is shaded and contains three unshaded boxes. The three
boxes are arranged roughly in a square formation where "ATM switch" and "Class 5
Voice Switch" are, respectively, on the top left and bottom left corners of the
square and "Optical Interface Equipment" is centered on the right side of the
square. There is a double-headed arrow between "Optical Interface Equipment" and
"ATM switch" and also between "Optical Interface Equipment" and "Class 5 Voice
Switch". There is an arrow from "ATM switch" to "Class 5 Voice Switch". From
"ATM Switch" there are double headed arrows pointing left to the captions "To
Internet Platform" and "To ATG National ATM Network", both of which are within
the left rectangle. From "Class 5 Voice Switch" there is an arrow pointing left
to a caption "To Public Switch Telephone Network", within the rectangle.
Finally, there is a thunderbolt pointing right to a caption "Leased bandwidth to
other cities", outside of the left rectangle.
The center rectangle is shaded and contains three unshaded boxes. The three
boxes are arranged roughly in a square formation where "Aggregation Equipment"
and "DSLAM" are, respectively, on the top right and bottom right corners of the
square and "Optical Interface Equipment" is centered on the left side of the
square. Between the "Aggregation Equipment" and "DSLAM" boxes is a caption,
relating to "Aggregation Equipment", "Circuit Switched Voice/Data Services".
Below "DSLAM" is a caption "Packet Switched Voice/Data Services". There are
double-headed arrows between "Optical Interface Equipment" and "Aggregation
Equipment" and also between "Optical Interface Equipment" and "DSLAM". There is
a double-headed arrow between "Aggregation Equipment" and a caption "To
Customers", outside of the center rectangle. Finally, there is a double-headed
arrow between "DSLAM" and a caption "To Customers", outside of the center
rectangle.
The right rectangle is unshaded and contains three shaded boxes. The three
boxes are arranged roughly in a square formation where "Aggregation Equipment"
and "DSLAM" are, respectively, on the top right and bottom right corners of the
square and "Optical Interface Equipment" is centered on the left side of the
square. Between the "Aggregation Equipment" and "DSLAM" boxes is a caption,
relating to "Aggregation Equipment", "Circuit Switched Voice/Data Services".
Below "DSLAM" is a caption "Packet Switched Voice/Data Services". There are
double-headed arrows between "Optical Interface Equipment" and "Aggregation
Equipment" and also between "Optical Interface Equipment" and "DSLAM". There is
a double-headed arrow between "Aggregation Equipment" and a caption "To
Customers", outside of the right rectangle. Finally, there is a double-headed
arrow between "DSLAM" and a caption "To Customers", outside of the right
rectangle.

In most of our operational markets we have installed or are installing at a
central, store-front location in the "hub" city a dedicated Class 5 voice switch
and an asynchronous transfer mode switch/router, commonly known as an ATM
switch. An ATM switch is a type of switch optimized to route Internet and data
traffic. Each hub is connected to the incumbent local telephone company's
network, to other carriers' points-of-presence and to the Internet. We install
multiple circuit-based voice and data line aggregators and multiple DSL
concentrators, commonly known as digital subscriber line access multiplexers, or
DSLAMs, in incumbent local telephone company central offices. This equipment is
connected by fiber optic transmission lines to our Class 5 voice and ATM
switches in our hub city to avoid the cost of purchasing and maintaining
multiple large switches in a single market. Our advanced network architecture
enables us to direct this traffic from the customer location to our access
equipment, and then to our hub switching facility. At our hub, this traffic is
then split into its data and voice components. Internet and data traffic is
carried to the Internet backbone or its appropriate destination. The voice
components are switched through our Class 5 voice switch to the public switched
telephone network. We use fiber optic networks that we have constructed,
purchased or leased and our ATM switches and related networks as a backbone to
connect our hub cities to our other hub cities and our hub cities to the spoke
cities. In some cases, where we have an operational Class 5 voice switch
installed in a nearby market and it is economical to do so, we may connect a new
market to the existing switch instead of purchasing another switch.

In our current markets under construction, we are accelerating our time to
market using an "Internet first" strategy in which we initially install DSLAMs
in multiple incumbent local telephone company central offices and ATM switches
in our central offices. This approach allows us to quickly enter a market and
acquire customers with our packet-based Internet and data services and to follow
up with voice services once the voice switch is installed and integrated into
the public switched telephone network. At the same time as we install and
integrate the voice switch, we also install circuit-based aggregation equipment
in the central offices where we have installed DSLAMs so that we can provide our
complete suite of Internet, data and voice services to all of our customers.
Over time, we expect that newly emerging technology will permit us to bring
voice services to market with the same speed as Internet and data services.

We generally provide high speed service over the "last mile" to our
customers by leasing copper or T-1 lines from the incumbent local telephone
company. These lines are connected to our equipment which is usually collocated
in the incumbent local telephone company central office. Where DSL-qualified
copper lines are not available, we may deploy wireless point-to-point and
point-to-multipoint radio transmission equipment to deliver multi-megabit
channels for Internet and voice traffic to our customers.

37
<PAGE> 41

Where it is technically feasible, we are also deploying "voice over DSL" to
efficiently deliver an integrated bundle of Internet, data and voice services.
Voice over DSL allows us to offer our customers multiple voice and high-speed
data communications services over one copper transmission line.

Rapid and significant changes in technology are expected in the
telecommunications industry. We are constructing an interoperability laboratory
at our Santa Rosa headquarters where we can test and evaluate the latest
technology before deciding to deploy it in our network. We intend to leverage
our technological expertise to identify the most reliable and capital efficient
equipment for our networks, and to ensure that we can bring to our customers the
highest quality, leading-edge services and applications. We will also use our
interoperability laboratory to identify primary and secondary suppliers for all
facets of our network infrastructure.

INFORMATION TECHNOLOGY AND OPERATING SUPPORT SYSTEMS

To better serve our customers and manage our business, we are developing
state-of-the-art, scalable operating support and back office systems that
integrate and automate all critical components of our operations. Unburdened by
legacy back-office systems, our management team is developing, acquiring and
integrating "best of breed" back office systems to facilitate a smooth,
efficient order management, provisioning, billing and collection and customer
service process that we believe will support our rapid growth, including the
integration of future acquisitions.

We believe that our operating support and back office systems will enhance
our productivity and service quality, and will provide us with a significant
competitive advantage by:

- automating the processes involved in connecting a customer to our
network;

- enabling single call resolution and real-time trouble-shooting of
customer inquiries; and

- providing each of our departments with an integrated view of all
provisioning, billing, customer service and collection activities.

Our integrated systems are web-based and based on "open" standards which
allow information data sources to be shared between each of the various
components of our systems and the integration of new and upgraded hardware and
software. We are developing a single data entry system that we believe will be
superior to many existing systems, which generally require multiple entries of
customer information. When our systems are fully integrated, data entered at any
point within our sales, service ordering, network provisioning, customer care,
trouble management and billing processes will be available and used by all other
parts of the system. This eliminates duplicate information entry into multiple
systems that can result in ordering problems, delays in installation, billing
problems and service interruptions. In addition, our single entry process will
be less labor intensive and will significantly reduce the time between sales and
billing.

In addition to the cost advantages, we believe our integrated operating
support systems approach will result in improved customer service relative to
other competitive carriers. Specifically, we expect that our customers will
benefit from faster service activation and service changes, timely repairs,
greater billing accuracy and customization and fewer errors.

38
<PAGE> 42

Although our interim operating support systems are fully operational, our
fully integrated system has not yet been completed. The following table
describes the key components of our systems, their status and their timeline for
integration:

<TABLE>
<CAPTION>
PURPOSE VENDOR(S) IN SERVICE INTEGRATION DATE
------- --------- ---------- ----------------
<S> <C> <C> <C>
Service order provisioning(1)..... Digital Counterpart, Inc. Yes Q3 2000
Billing and customer care(2)...... Lucent Technologies/Kenan Systems Yes Q3 2000
Corporation
Conversion billing services in
connection with
acquisitions(3)................. Dayton Data Processing Yes Q3 2000
Call data record collection and
processing(2)................... Lucent Technologies Yes Q3 2000
Finance, accounting, human
resources, fixed assets and
project costing................. Oracle Corporation Yes Q3 2000
Trouble ticketing and customer
care(1)......................... Remedy Corporation Yes Q3 2000
Network management(1)............. Hewlett-Packard Corporation Yes Q3 2000
Network facilities and equipment
inventory management(1)......... Granite Systems, Inc. Q2 2000 Q4 2000
Electronic bonding with other
telecom providers(1)............ Quintessent Communications Q2 2000 Q3 2000
Sales compensation management..... ATG internal development Q2 2000 Q2 2000
Revenue assurance................. InformationView Solutions Corporation Q2 2000 Q4 2000
Carrier access billing............ GTE Telecommunications Services Q3 2000 Q4 2000
and/or incumbent local telephone
company or long distance carrier
Customized customer invoice....... Group One Software Q3 2000 Q4 2000
Sales force automation and contact
management...................... SalesLogix Corporation Q3 2000 Q1 2001
TDM switch provisioning(1)........ Lucent Technologies Q3 2000 Q1 2001
Application integration........... Object Switch Q3 2000 Q1 2001
Network analysis and reporting.... TeleInsight Q3 2000 Q2 2001
TDM switch network management
(voice elements)(1)............. -- Q3 2000 Q2 2001
On-line bill payment and
reporting....................... CallVision Q4 2000 Q2 2001
ATM/IP/MGCS network
provisioning(1)................. -- Q4 2000 Q2 2001
Workforce dispatch and
scheduling...................... -- Q4 2000 Q2 2001
Customer self-care................ -- Q4 2000 Q3 2001
Fraud management.................. Lucent Technologies Q1 2001 Q3 2001
</TABLE>

- ---------------
(1) Lucent Technologies provides outsourced services.

(2) American Management Systems provides outsourced services.

(3) Dayton Data Processing provides outsourced services.

GOVERNMENT REGULATION

Overview

Our services are subject to a variety of federal regulations. Parts of our
operations are subject to the jurisdiction of state and local authorities. These
authorities may also assert more extensive jurisdiction over our other
facilities and services. The Federal Communications Commission, or FCC,
exercises jurisdiction in respect of all of our services and facilities to the
extent that we provide interstate and international services. To the extent we
provide identifiable intrastate services, our services and facilities are
subject to state regulators' jurisdiction. In addition, local municipal
government authorities also assert jurisdiction over our facilities and

39
<PAGE> 43

operations. The jurisdictional reach of the various federal, state, and local
authorities is subject to ongoing controversy and judicial review, and we are
unable predict the outcome of such proceedings.

Federal Regulation

We must comply with the requirements of the Communications Act of 1934, as
amended by the 1996 Act, as well as the FCC's regulations under the statutes.
The 1996 Act eliminates many of the pre-existing legal barriers to competition
in the telecommunications and video programming communications businesses,
preempts many of the state barriers to local telecommunications service
competition and sets basic standards for relationships between
telecommunications providers. The law delegates to the FCC and the states broad
regulatory and administrative authority to implement the 1996 Act.

Among other things, the 1996 Act removes barriers to entry in the local
telecommunications market. It does this by preempting state and local laws that
are barriers to competition and by requiring that incumbent local telephone
companies provide nondiscriminatory access and interconnection to potential
competitors, such as cable operators, wireless telecommunications providers,
long distance carriers, and competitive carriers such as us.

Regulations promulgated by the FCC under the 1996 Act require that the
incumbent local telephone companies open their networks to competition by
providing competitors with interconnection rights, central office space, access
to unbundled network elements, retail services at wholesale rates and
nondiscriminatory access to telephone poles, ducts, conduits and rights-of-way.
The requirements enable companies such as us to interconnect with the incumbent
local telephone companies in order to provide local telephone exchange services
and to use portions of the incumbent local telephone companies' existing
networks to offer new and innovative services. Although in January 1999 the U.S.
Supreme Court upheld most of the FCC's authority and its regulations, the FCC
was required to reexamine and redefine which services the incumbent local
telephone companies must offer. The FCC issued regulations that support the
original list of unbundled network elements that must be provided by incumbent
local telephone companies and added a few others, but eliminated directory
assistance and operator services in the belief that competitive alternatives
already exist to those services and are available for use by competitors.

The 1996 Act also allows incumbent local telephone companies to enter the
long distance market within their own local service regions upon meeting certain
requirements. Although the timing of the entry of the incumbent local telephone
companies into the long distance service business in their respective markets is
extremely uncertain, it will likely affect the level of cooperation we receive
from each of the incumbent local telephone companies as we operate in our
existing and future markets.

In addition, the 1996 Act provides relief from the earnings restrictions
and price controls that have governed the local telephone business for many
years. Incumbent local telephone company tariff filings at the FCC have been
subjected to increasingly less regulatory review. However, precisely when and to
what extent the incumbent local telephone companies will secure pricing
flexibility or other regulatory freedom for their services is uncertain. For
example, under the 1996 Act, the FCC is considering eliminating certain
regulations that apply to the incumbent local telephone companies' provision of
services that are competitive with ours. The timing and the extent of regulatory
freedom and pricing flexibility granted to the incumbent local telephone
companies will affect the level of competition we face from their competitive
services.

The 1996 Act provides the FCC with the authority to forebear from imposing
certain regulations on entities such as us who are classified as "non-dominant"
carriers. The FCC has exercised its forebearance authority with regard to
tariffing requirements for interstate, interexchange services; however, due to
protests by certain interstate carriers, that forebearance remains in suspension
pending further review by the FCC. On March 18, 1999, the FCC announced that it
was adopting rules to make it easier and less expensive for competitive carriers
to obtain central office space and to require incumbent local telephone
companies to make new alternative arrangements for providing central office
space. Under those rules, new entrants could be able to collocate all equipment
necessary for interconnection, whether or not such equipment has a switching
function. However, we cannot assure you that the FCC's rules will be
successfully implemented, because on March 17, 2000, the U.S. Circuit Court of
Appeals for the D.C. Circuit vacated the FCC's collocation rules and remanded
several issues regarding collocation in incumbent local telephone company
central offices for the FCC to respond with better justification for its
40
<PAGE> 44

actions. While the FCC is expected to require that current collocation offerings
be continued during the reconsideration period, incumbent local telephone
companies may attempt to delay providing collocation pending FCC
reconsideration.

Also in March 1999, the FCC provided notice of proposed rule making to
determine whether carriers should be able to provide asymmetric digital
subscriber line service, or ADSL, over the same line over which incumbent local
telephone companies provide voice service, called line-sharing. On December 9,
1999, the FCC issued a decision requiring the incumbent local telephone
companies to implement line sharing within six months. The decision has been
challenged by a number of incumbent local telephone companies. The FCC also
issued an order in the SBC/Ameritech merger case on October 6, 1999, requiring
that SBC/Ameritech conduct line-sharing trials with carriers to determine
whether it was possible to line-share technologically. Rhythms NetConnections,
Inc. recently announced it had conducted a successful trial of the technology
with SBC. SBC/Ameritech is currently in negotiations with carriers to determine
how to price and provision line-sharing in its 13 state region and the
appropriate interconnection agreement language to allow carriers to utilize
line-sharing. It is not ATG's current strategy to deploy its DSL services via
line-sharing. Implementation of line-sharing will enable competing DSL-only
providers to reach customers without also having to provide voice services and
at less than the cost of leasing the entire transmission line, giving them a
cost advantage in providing DSL services alone over companies which lease the
entire transmission line.

The FCC also has under consideration a rulemaking to reform intercarrier
compensation for access traffic, universal service support mechanism funding and
related transfers of costs between carriers. To the extent that access charges
would be reduced from interconnecting carriers, we may suffer financially,
unless we can recover the difference from our customers. To the extent that
universal service support contributions are finally determined and are required
to be passed through to customers, customers may faces increases in their rates
which could impact the type and volume of services they purchase, thereby
harming our potential profitability.

We believe that we are entitled to receive reciprocal compensation from
incumbent local telephone companies for the transport and termination of local
traffic bound for the Internet, pursuant to various interconnection agreements.
Some incumbent local telephone companies have not paid and/or have disputed
these claims, arguing that Internet service provider traffic is not local
traffic as defined by the various agreements. Both state and federal regulators
currently are considering the proper jurisdictional classification of local
calls placed to an Internet service provider, and whether calls to Internet
service providers trigger an obligation to pay reciprocal compensation. Also, on
March 24, 2000, the Court of Appeals for the D.C. Circuit remanded to the FCC
its earlier decision allowing states to require reciprocal compensation for
Internet service provider-bound traffic in the absence of a federal rule to the
contrary, and ordered the FCC to reconsider its earlier decision that Internet
service provider traffic is interstate in nature. Therefore, we cannot assure
you how these issues will be finally resolved whether any such resolution will
be favorable to us.

Specific statutes and regulations addressing this service have not been
adopted, and the extent to which current laws and regulations at the city, state
and federal levels will be interpreted to include such Internet telephone
services has not been determined. The FCC has indicated, for example, that voice
telecommunications carried over the Internet between two telephone sets using
the public switched network may be subject to payment of access charges,
universal service support funding, and taxation obligations, while voice
telecommunications using computers rather than telephone sets may not be subject
to such obligations. We cannot assure you that new laws or regulations relating
to these services, or a determination that existing laws apply to such services,
will not have a material adverse effect on our business.

Our business could be harmed by:

- any changes in applicable federal law and regulations, particularly
changes in the requirements with respect to interconnection agreements
with incumbent local telephone companies;

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<PAGE> 45

- the entry of the incumbent local telephone companies into the long
distance business in their respective regions; and

- the granting of regulatory freedom and pricing flexibility to the
incumbent local telephone companies.

State Regulation

To the extent that we provide identifiable intrastate services or have
otherwise submitted ourselves to the jurisdiction of the relevant state utility
regulatory commissions, we are subject to state regulations. In addition,
certain states have required prior state certification as a prerequisite for
processing and deciding an arbitration petition for interconnection under the
1996 Act. As of February 29, 2000, we were authorized under state law to operate
as a competitive local exchange carrier in 12 states and have filed or are
filing for authority in all other states. We have interconnection arrangements
with the relevant incumbent local telephone companies approved or pending
approval in 12 states. In other states where we have identified in our future
market plans, we intend to negotiate interconnection agreements, opt-into, or
pick and choose provisions from, existing interconnection agreements. We have
filed tariffs in certain states for intrastate services as required by state law
or regulation. We are also subject to periodic financial and other reporting
requirements of these states with respect to our intrastate services.

The different state public utility commissions employ various proceedings
to determine the rates, charges and terms and conditions for unbundled network
elements, as well as the discount for wholesale services that we purchase from
the relevant incumbent local telephone company. The rates set forth in some of
our interconnection agreements are interim rates and will be prospectively
affected by the permanent rates set by the various state commissions for such
unbundled network elements. If any state commission decides to change the
unbundled network element rates our operating results could suffer. In addition
to permanent statewide unbundled network element rates, these commissions are
now required to geographically deaverage unbundled loop rates by zone by May 1,
2000. Depending on where zone lines are set and if the incumbent local telephone
company retail rates are not also deaveraged, our profitability in less
geographically dense zones may suffer compared with profitability under
statewide average unbundled loop rates.

The applicability of the various state regulations to our business and
compliance requirements will be further affected by the extent to which our
Internet traffic termination services for other carriers are determined to be
intrastate services. Classification of such services as intrastate services
could materially harm our business, as we may have to comply with additional
regulatory requirements; however, revenue for such services are not included in
our target market business plans.

Local Government Regulation

We may be required to obtain various permits and authorizations from
municipalities in which we operate our facilities. Although we rely on the
unbundled network elements of the incumbent local telephone companies, we also
deploy our own facilities, including fiber optic cables, and therefore may need
to obtain certain municipal permits or other authorizations. Imposition of
rigorous conditions on the grant of permits or other authorizations, or their
denial of such permits or other authorizations, could harm our business. Whether
local government regulation of the activities of telecommunications carriers is
preempted by federal law because it poses barriers to entry for competitive
carriers is the subject of pending litigation.

The foregoing is not intended to describe completely all present and
proposed federal, state, and local regulations and legislation affecting the
telecommunications industry. Other existing federal regulations are currently
the subject of judicial proceedings, legislative hearings, and administrative
proposals. The outcome of these proceedings and the ultimate impact of the 1996
Act or any final regulations adopted pursuant to that Act, on our business is
uncertain. We cannot predict the impact, if any, that future regulation or
regulatory changes may have on our business and we can give you no assurance
that such future regulation or regulatory changes will not harm our business.
42
<PAGE> 46

Licenses and Approvals

The construction of a communications network requires us to obtain
municipal franchises and other permits. These rights are typically the subject
of non-exclusive agreements of finite duration providing for our payment of fees
or provision of services to the municipality without compensation. In addition,
we must secure rights-of-way and other access rights which are typically
provided under non-exclusive multi-year agreements, which generally contain
renewal options. Generally, these rights are obtained from utilities, incumbent
local telephone companies, other competitive carriers, railroads, and long
distance carriers. Our agreements for rights-of-way and similar matters
generally require us to indemnify the party providing such rights.

COMPETITION

Incumbent Local Telephone Companies

The telecommunications industry is highly competitive. Our principal
competitors in our targeted markets are the incumbent local telephone companies
which are primarily the regional Bell operating companies created by AT&T's
divestiture of its local telephone business, including BellSouth, Bell Atlantic
Corporation, Ameritech Corporation, US West Communications, Inc. and SBC
Communications, Inc. and certain affiliates of GTE. These companies presently
have almost 100% of the market share in most of our target markets.

The incumbent local telephone companies have long-standing relationships
with their customers, as well as financial, technical and marketing resources
substantially greater than ours. Recent regulatory initiatives have allowed
competitive carriers such as us to interconnect with an incumbent local
telephone company's facilities and have provided us with increased business
opportunities. The same initiatives, however, have also increased pricing
flexibility for and relaxed regulatory oversight of the incumbent local
telephone companies. If the incumbent local telephone companies increase volume
and discount pricing practices or increase fees to competitive carriers for
interconnection to their networks, or if the incumbent local telephone companies
seek to delay interconnection to their networks, competition in our markets
could intensify and the conditions under which we operate would be made
substantially more difficult. To the extent we interconnect with and use
incumbent local telephone company networks to service our customers, we will be
dependent upon the technology and capabilities of the incumbent local telephone
companies to meet some of the telecommunications needs of our customers and to
maintain our service standards.

Competitive Carriers and Other Competitors

Other competitive carriers, microwave and satellite carriers, wireless
telecommunications providers and large end-users which build their own private
networks may compete with us in our markets. Other potential competitors include
cable television companies, utilities and incumbent local telephone companies
seeking to operate outside their current local service areas.

Both the long distance business and the data transmission business are
extremely competitive. Prices in both businesses have declined significantly in
recent years and are expected to continue to decline. In the long distance
business, we will face competition from large carriers such as AT&T, Sprint and
WorldCom. We will rely on these large carriers as well as others to provide
transmission and termination for our long distance traffic and therefore will be
dependent on such carriers.

We will also face competition from fixed and mobile wireless services
providers. The FCC has authorized cellular, personal communications services and
other providers to offer wireless services to both fixed and mobile locations.
These providers can offer wireless local telephone service and other services to
fixed locations, such as office and apartment buildings, in direct competition
with us and existing providers of traditional land-based telephone service.

In addition, recent FCC rules make it substantially easier for many
non-U.S. communications companies to enter the U.S. market, thus potentially
further increasing the number of competitors.

43
<PAGE> 47

Internet Service Providers

The market for Internet access services is also extremely competitive.
There are no substantial barriers to entry, and we expect that competition will
intensify in the future. Our success in selling these services will depend
heavily upon our ability to provide high-quality Internet connections at
competitive prices.

INTELLECTUAL PROPERTY

We regard our products, services and technology as proprietary and attempt
to protect them with copyrights, trademarks, trade secret laws, restrictions on
disclosure and other methods. We also generally enter into confidentiality or
license agreements with our employees and consultants, and generally control
access to and distribution of our documentation and other proprietary
information. Currently we have seven service mark applications pending. Despite
our precautions, we may not be able to prevent misappropriation or infringement
of our products, services and technology.

Our logo and some titles and logos of our services mentioned in this
prospectus are either our service marks or service marks that have been licensed
to us. Each trademark, trade name or service mark of any other company appearing
in this prospectus belongs to its holder.

EMPLOYEES

As of March 31, 2000, we had 472 full-time employees, including 83
employees engaged in our sales and marketing efforts. We believe that our future
success will depend on our continued ability to attract and retain highly
skilled and qualified employees. None of our employees are currently represented
by a labor union or under a collective bargaining agreement. We believe that we
enjoy good relationships with our employees.

LEGAL PROCEEDINGS

We are not party to any pending legal proceedings that we believe could,
individually or in the aggregate, have a material adverse effect on our
financial condition or results of operations.

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<PAGE> 48

FACILITIES

We are headquartered in Santa Rosa, California and primarily lease offices
and space in a number of locations which support our information technology
group, national customer service staff, divisional headquarters and other
offices used primarily for sales, customer service and installation/repair and
repair personnel. The table below lists both our leased and owned facilities as
of March 31, 2000:

Leased Facilities

<TABLE>
<CAPTION>
APPROXIMATE
LOCATION DESCRIPTION SQUARE FOOTAGE LEASE EXPIRATION
- -------- ----------- -------------- ----------------
<S> <C> <C> <C>
Santa Rosa, CA corporation headquarters 37,568 January 2010
Germantown, MD east division headquarters 17,430 October 2009
Tacoma, WA office -- hub site 8,263 February 2009
Salem, OR office -- hub site 7,815 May 2009
Santa Rosa, CA office -- hub site 8,278 May 2014
Reno, NV office -- hub site 4,733 August 2009
Rockville, MD office -- hub site 7,400 September 2009
Portland, OR office -- hub site 9,760 February 2001
Portland, OR hub site 2,984 April 2001
Eugene, OR office space 5,560 August 2004
Tucson, AZ office space 449 December 2000
Olympia, WA office space 2,309 March 2009
Santa Rosa, CA office space 3,634 August 2004
Yakima, WA office space 1,104 August 2000
Bellingham, WA office space 1,000 August 2000
Medford, OR office space 2,500 September 2004
Eugene, OR office space 1,398 April 2001
Frederick, MD office space 2,145 October 2004
Stamford, CT office space 500 July 2000
Salem, OR office and warehouse 3,000 April 2000
Seattle, WA office space 2,710 April 2000
Novato, CA office space 1,600 June 2000
</TABLE>

Owned Facilities

<TABLE>
<CAPTION>
APPROXIMATE
LOCATION DESCRIPTION SQUARE FOOTAGE
- -------- ----------- --------------
<S> <C> <C> <C>
Bend, OR office space 1,569
Salem, OR office space 63,000
</TABLE>

We believe that both our owned and leased facilities are adequate to meet
our current needs and that additional facilities will be available to meet our
development and expansion needs in existing and projected target markets.

45
<PAGE> 49

MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

The following table sets forth certain information regarding our executive
officers, directors and key employees as of April 11, 2000:

<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Clifford G. Rudolph....................... 53 Chairman of the Board, Chief Executive Officer
and Secretary
Robert T. Warstler........................ 57 President and Chief Operating Officer
Thomas A. Grina........................... 42 Senior Vice President and Chief Financial Officer
Curtis E. Wheeling........................ 52 Senior Vice President and Chief Technology
Officer
Katharine S. Klein........................ 46 Senior Vice President, Corporate Development and
Strategic Planning
Robert F. Benbow.......................... 64 Director
William S. Price(2)(3).................... 43 Director
John G. Puente(1)(2)...................... 69 Director
John Watkins(1)........................... 39 Director
Blair P. Whitaker(1)(2)(3)................ 38 Director
KEY EMPLOYEES
Michael R. Black.......................... 51 President, Western Division
Harry F. Gowl............................. 53 President, Eastern Division
Daniel Cruz............................... 47 Vice President and Chief Systems Officer
Charlene S. Curry......................... 30 Vice President, Finance and Treasurer
Daniel K. Fee............................. 51 Vice President, Human Resources and Training
Scott A. Mindemann........................ 35 Vice President, Wireless Technologies
Eric E. Russell........................... 32 Vice President and Controller
Eugene F. Sokol........................... 62 Vice President, Marketing Communications
Kathryn L. Thomas......................... 51 Vice President, Regulatory and Public Policy
Christopher Ward.......................... 38 Vice President, Internet Services
</TABLE>

- ---------------
(1) Member of the Audit Committee.

(2) Member of the Compensation Committee.

(3) Member of the Finance Committee.

CLIFFORD G. RUDOLPH co-founded ATG in July 1998, has been our Chief
Executive Officer since December 1998 and has served as Chairman of the Board
and Secretary since our formation. From July 1998 to July 1999, Mr. Rudolph also
served as our President. From October 1995 to July 1998, Mr. Rudolph was
President of Eastern/Western Divisions at Brooks Fiber Properties, a competitive
local exchange company that was subsequently sold to MCI/WorldCom. From
September 1994 to October 1995, Mr. Rudolph was a general partner at Sierra
Associates, a communications consulting firm. From June 1992 to September 1994,
Mr. Rudolph was Vice President, Marketing for Hitachi Data Systems, a mainframe,
data storage and information services company and from November 1988 to June
1992, Mr. Rudolph was Vice President, Marketing at U.S. West Communications.

ROBERT T. WARSTLER has been our President and Chief Operating Officer since
July 1999. From October 1997 to July 1999, Mr. Warstler was Senior Vice
President, Global Sales at Network Equipment Technology, a networking company.
From June 1997 to October 1997, Mr. Warstler was President of RTW Consulting, a
consulting firm. From April 1992 to June 1997, Mr. Warstler was Vice President
and General Manager of the Americas for Hitachi Data Systems and from January
1990 to January 1992, Mr. Warstler was Vice President of Markets Planning at
U.S. West Communications.

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<PAGE> 50

THOMAS A. GRINA has been our Senior Vice President and Chief Financial
Officer since May 1999. From April 1996 to August 1998, Mr. Grina was the
Executive Vice President and Chief Financial Officer of Advanced Radio Telecom,
a provider of broadband fixed wireless and data networking services and from May
1989 to March 1996, Mr. Grina was Executive Vice President and Chief Financial
Officer of Dial Page Inc., a wireless communications company.

CURTIS E. WHEELING co-founded ATG in July 1998 and has been our Senior Vice
President and Chief Technical Officer since June 1999. From July 1998 to June
1999, Mr. Wheeling served as Senior Vice President, Marketing. From February
1996 to June 1998, Mr. Wheeling was Vice President of Market and Business
Development at Brooks Fiber Properties and from June 1994 to February 1996, Mr.
Wheeling was Vice President of Network Services for Hitachi Data Systems.

KATHARINE S. KLEIN has been our Senior Vice President, Corporate
Development and Strategic Planning since August 1999. From December 1996 to July
1999, Ms. Klein was Managing Director, Communications Finance, of General
Electric Capital Corporation, a diversified finance company. From March 1983 to
February 1996, Ms. Klein was employed by Lehman Brothers, Inc., most recently as
Managing Director, Investment Banking.

ROBERT F. BENBOW has served as one of our directors since July 1998. Mr.
Benbow has been a Managing Partner at Alta Communications, a venture capital
company, since 1990. Mr. Benbow was previously a Senior Vice President at Bank
of New England, N.A. for 22 years.

WILLIAM S. PRICE has served as one of our directors since December 1999.
Mr. Price was a founding partner of Texas Pacific Group, a private equity firm,
where he has been since 1992. Prior to that, Mr. Price was Vice President of
Strategic Planning and Business Development for General Electric Capital
Corporation. Mr. Price is also currently a director of Beringer Wine Estates
Holdings, Inc., Continental Airlines, Inc., Del Monte Foods Company, Denbury
Resources Inc., First World Communications and several private companies.

JOHN G. PUENTE has served as one of our directors since December 1999. Mr.
Puente has been the Chairman of Internet Cargo Services, Inc., a company that
coordinates product shipments over the Internet, since June 1998. Prior to that,
from June 1996 to June 1998, Mr. Puente served as Chairman of Telogy Networks,
Inc., a developer of communications software products. Previously, from 1987 to
June 1996, Mr. Puente was Chairman and Chief Executive Officer of Orion Network
Systems, an international satellite company. From 1978 to 1987, Mr. Puente was
Vice Chairman of M/A Com, a components, communications, systems and hardware
company. Mr. Puente was a founder and, from 1972 to 1978, served as Chairman of
Digital Communications Corporation (now Hughes Network Systems), a digital
communications company. From 1982 to 1985, Mr. Puente served as Chairman of
SouthernNet, a fiber optic long distance company. Mr. Puente is also currently a
director of Primus Telecommunications Group Incorporated, Micros Systems Inc.
and Via Net.Works, Inc.

JOHN WATKINS has served as one of our directors since December 1998. Mr.
Watkins is a Managing Director of J.P. Morgan Capital Corporation, where since
1991 he has been responsible for J.P. Morgan Capital's worldwide equity
investments in Communications, Media and the Internet. He currently serves as a
director of Triton PCS and several private companies.

BLAIR P. WHITAKER has served as one of our directors since July 1998. Mr.
Whitaker has been a general partner of Norwest Venture Partners, a venture
capital firm since October 1997. Prior to that, from January 1996 to September
1997, Mr. Whitaker was the Chief Financial Officer and Vice President, Business
Development of Exactis.com, an e-mail marketing solutions company. From
September 1990 to December 1995, Mr. Whitaker was the Vice President of
Centennial Funds, a private investment firm.

MICHAEL R. BLACK co-founded ATG in July 1998 and has been the President of
our Western Division since July 1999. From July 1998 to July 1999, Mr. Black was
our Senior Vice President, Sales and Field Operations. From January 1997 to June
1998, Mr. Black was a Regional Vice President of Operations and Sales at Brooks
Fiber Properties and from January 1994 to December 1996, Mr. Black was the Vice
President of Sales for Ameritech Corporation, an incumbent local telephone
company.
47
<PAGE> 51

HARRY F. GOWL has been the President of our Eastern Division since
September 1999. From January 1998 to September 1999, Mr. Gowl was President and
Chief Executive Officer of NewComm Net, Inc., a start-up competitive telephone
company, until it was acquired by ATG. From August 1996 to December 1997, Mr.
Gowl was Vice President, International Sales at G.I. Business Networks, a
digital encoding company. In 1995, Mr. Gowl was Regional Vice President at TCG,
Inc., a competitive local exchange carrier. From July 1993 to December 1994, Mr.
Gowl was Senior Vice President and General Manager of International Networking
at Orion Network Systems.

DANIEL CRUZ has been our Vice President and Chief Systems Officer since
September 1998. From January 1997 to May 1998, Mr. Cruz was the founder,
Chairman and Chief Executive Officer of Quintessant Communications Inc., an
electronic bonding company. From 1987 to January 1997, Mr. Cruz served as the
President, Chief Executive Officer and Chief Technical Officer for Network
Designs Corporation, an integration and software engineering company.

CHARLENE S. CURRY has been our Vice President, Finance and Treasurer since
November 1998. From June 1998 to November 1998, Ms. Curry was Assistant
Controller at Inxight Software Inc., a Xerox New Enterprise Business. From July
1996 to May 1998, Ms. Curry was Regional Director of Finance at Brooks Fiber
Properties. From February 1996 to June 1996, Ms. Curry was an Accounting Manager
at Insync Corporation. From January 1995 to January 1996, Ms. Curry was Senior
Tax Specialist at Frank, Rimerman + Co. LLP and from September 1991 to January
1995, Ms. Curry was a Senior Audit Specialist at KPMG Peat Marwick, LLP.

DANIEL K. FEE has been our Vice President of Human Resources and Training
since August 1999. From December 1998 to August 1999, he was one of our Regional
Vice Presidents. From July 1996 to joining ATG in December 1998, Mr. Fee was the
General Manager at Brooks Fiber Communications in Fresno. From December 1991 to
July 1996, Mr. Fee was a Human Resources consultant and was a panel member of
the American Arbitration Association. Mr. Fee retired from Southwestern Bell
Telephone Company in December 1991 as the EEO/Labor Relations Manager for the
state of Missouri.

SCOTT A. MINDEMANN has been our Vice President of Wireless Technologies
since June 1999. From February 1997 to June 1999, Mr. Mindemann was Vice
President of Internet and Telecommunications Technology for CS Wireless Systems,
Inc., a broadband wireless operator, which was subsequently sold to
MCI/WorldCom. From December 1994 to February 1997, Mr. Mindemann was the founder
and Chief Executive Officer for Digital Nexus, an Internet Service Provider and
technology consulting group. From May 1992 to August 1995, Mr. Mindemann served
as Sr. Member Technical Staff for Interphase Corporation, a developer and
manufacturer of ATM and fibre channel networking equipment.

ERIC E. RUSSELL has been our Vice President and Corporate Controller since
July 1999. From August 1995 to June 1999, Mr. Russell was the Vice President of
Operations and Vice President of Finance for Precision Navigation, Inc., a
developer of sensor-based technology products.

EUGENE F. SOKOL has been our Vice President of Marketing Communications
since December 1998. From July 1996 to September 1998, Mr. Sokol served as
President of VNU USA's Financial Software Division. From April 1991 to July
1996, Mr. Sokol was Executive Vice President of Marketing with MRP, a U.S. West
media software company acquired by VNU USA. Mr. Sokol founded EF Sokol &
Associates in 1979, a marketing and advertising communications company, and
served as its Chief Executive Officer and President until its acquisition in
1990.

KATHRYN L. THOMAS has been our Vice President for Regulatory and Public
Policy since December 1998. From May 1996 to December 1998, Ms. Thomas served as
Director of Government and Regulatory Affairs -- Western Division, Brooks Fiber
Properties. From June 1993 to May 1996, Ms. Thomas served as the Assistant
Director -- Telecommunications at the Washington Utilities and Transportation
Commission. Prior to that, she was a consultant and expert witness on utility
matters at Exeter Associates and held senior staff positions at Potomac Electric
Power Company, Northeast Utilities, the Bendix Corporation and Deloitte, Haskins
and Sells.

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<PAGE> 52

CHRISTOPHER WARD has been our Vice President of Internet Services since
December 1998. From October 1997 to May 1998, Mr. Ward was Vice President of
Engineering for the Northern California Region of Verio Corporation. From March
1994 to September 1997, Mr. Ward was founder and Chief Executive Officer for
West Coast Online, an Internet and web hosting company.

BOARD OF DIRECTORS

Our board of directors currently consists of seven authorized members. When
this offering is completed, our certificate of incorporation will provide for a
classified board of directors consisting of three classes of directors, each
serving staggered three year terms. As a result, a portion of our board of
directors will be elected each year. To implement the classified structure,
three of the nominees to the board of directors will be elected to one year
terms, two will be elected to two year terms and two will be elected to three
year terms. Thereafter, directors will be elected for three year terms. Messrs.
Benbow and Puente will be designated class I directors, whose terms will expire
at the 2001 annual meeting of stockholders. Messrs. Watkins and Whitaker will be
designated class II directors, whose terms will expire at the 2002 annual
meeting of stockholders. Messrs. Rudolph and Price will be designated class III
directors, whose terms will expire at the 2003 annual meeting of stockholders.
This classification of our board of directors may delay or prevent a change in
control of our company or in our management. See "Description of Capital
Stock -- Delaware Anti-Takeover Law and Certain Charter and Bylaw Provisions."

BOARD COMMITTEES

We established an audit committee, a compensation committee and a finance
committee in December 1998. The audit committee consists of Messrs. Puente,
Watkins and Whitaker. The audit committee reviews our internal accounting
procedures and consults with and reviews the services provided by our
independent accountants.

The compensation committee consists of Messrs. Price, Puente and Whitaker.
The compensation committee reviews and recommends to the board of directors the
compensation of all of our officers and directors, including stock compensation
and loans and establishes and reviews general policies relating to the
compensation and benefits of our employees.

The finance committee consists of Messrs. Price and Whitaker. The finance
committee assists with evaluating proposed debt and equity offerings.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During 1999, Messrs. Benbow, Price and Whitaker served on our compensation
committee. The table below sets forth the issuances of shares of our capital
stock to the following affiliates of the members of our compensation committee
since December 31, 1998:

<TABLE>
<CAPTION>
SERIES B SERIES D
NAME PREFERRED STOCK PREFERRED STOCK
- ---- --------------- ---------------
<S> <C> <C>
Entities affiliated with Alta Communications(1)......... 7,593,750 1,126,126
Entities affiliated with Norwest Venture Partners(2).... 10,125,000 4,504,504
Entities affiliated with Texas Pacific Group(3)......... -- 15,090,088
</TABLE>

- ---------------
(1) Includes 8,714,826 shares held by Alta Communications VII, L.P., and 5,050
shares held by Alta VII Associates LLC. Robert F. Benbow, one of our
directors, is affiliated with these entities. Mr. Benbow disclaims
beneficial ownership of these shares except to the extent of his pecuniary
interest. See "Principal Stockholders" for further information.

(2) Includes 7,314,752 shares held by Norwest Venture Partners, VI, L.P., and
7,314,752 shares held by Norwest Equity Partners VI, L.P. Blair P. Whitaker
is affiliated with these entities. Mr. Whitaker disclaims beneficial
ownership of these shares except to the extent of his pecuniary interest.
See "Principal Stockholders" for further information.

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<PAGE> 53

(3) Includes 12,857,075 shares held by TPG Partners II, L.P., 1,341,126 shares
held by TPG Investors II, L.P., 877,401 shares held by TPG Parallel, L.P.
and 14,486 shares held by TPG 1999 Equity Partners II, L.P. William S.
Price, one of our directors, is affiliated with these entities. Mr. Price
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest. See "Principal Stockholders" for further information.

None of the members of the compensation committee has been or is currently
one of our officers or employees. None of our executive officers currently
serves, or in the past has served, as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving on our board of directors.

DIRECTOR COMPENSATION

We intend to pay certain of our non-employee directors $3,000 per meeting
attended in person. We do not provide additional compensation for committee
participation. When a non-employee director first joins our board we intend to
grant him or her an option to purchase up to 100,000 shares of common stock. The
exercise price of each non-employee director option will equal 100% of the fair
market value on the date of grant of the common stock covered by the option.
These options will vest one quarter on the date of grant and the remainder over
a period of three years from the date of grant, but only if the director remains
on our board. Only our non-employee directors who are not affiliated with our
pre-public investors will receive the cash meeting fee and stock option. We
intend to reimburse all of our non-employee directors for all direct expenses
incurred by them in attending a board of director meeting and any committee
meeting on which they serve.

LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION

Upon completion of this offering, our certificate of incorporation will
limit the liability of directors to the maximum extent permitted by Delaware
law. Delaware law provides that directors of a corporation will not be
personally liable for monetary damages for breach of their fiduciary duties as
directors, except liability for:

- any breach of their duty of loyalty to the corporation or its
stockholders;

- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law;

- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or

- any transaction from which the director derived an improper personal
benefit.

The limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.

Our certificate of incorporation and bylaws will provide that we will
indemnify our directors and officers and may indemnify our employees and other
agents to the fullest extent permitted by law. We believe that indemnification
under our bylaws will cover negligence on the part of indemnified parties at a
minimum. Our bylaws will also permit us to secure insurance on behalf of any
officer, director, employee or other agent for any liability arising out of his
or her actions in their capacity as an officer, director, employee or other
agent, regardless of whether our bylaws would permit indemnification.

We have entered into agreements to indemnify our directors and executive
officers, in addition to the indemnification that will be provided for in our
bylaws. These agreements, among other things, provide for indemnification for
judgments, fines, settlement amounts and certain expenses, including attorneys'
fees incurred by the director or executive officer in any action or proceeding,
including any action by or in our right, arising out of the person's services as
a director or executive officer of us, any of our subsidiaries or any other
company or enterprise to which the person provides services at our request. We
believe that these provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers.
50
<PAGE> 54

The limited liability and indemnification provisions that will be contained
in our certificate of incorporation and bylaws may discourage stockholders from
bringing a lawsuit against our directors for breach of their fiduciary duty and
may reduce the likelihood of derivative litigation against our directors and
officers, even though a derivative action, if successful, might otherwise
benefit us and our stockholders. A stockholder's investment in us may be
adversely affected to the extent we pay the costs of settlement or damage awards
against our directors and officers under these indemnification provisions.

There is no pending litigation or proceeding involving any of our
directors, officers or employees in which indemnification is sought, nor are we
aware of any threatened litigation that may result in claims for
indemnification.

EXECUTIVE COMPENSATION

The following table sets forth the compensation earned, awarded or paid for
services rendered to us in all capacities for the fiscal year ended December 31,
1999 by our Chief Executive Officer and our other most highly compensated
executive officers who earned more than $100,000 in salary and bonus during the
fiscal year ended December 31, 1999, whom we refer to in this prospectus
collectively as the "named executive officers":

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
---------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITIONS SALARY BONUS OPTIONS COMPENSATION
- ---------------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Clifford G. Rudolph................... $242,119 $350,000(1) 1,750,000 $ 8,016(2)(3)
Chief Executive Officer and
Secretary
Robert T. Warstler.................... $102,403(4) $ 45,000 500,000 $10,012(5)
President and Chief Operating
Officer
Thomas A. Grina....................... $152,493(6) $ 52,200 500,000 $70,916(2)(7)
Senior Vice President and Chief
Financial Officer
Curtis E. Wheeling.................... $175,000 $ 43,750 250,000 $ 4,833(2)(8)
Senior Vice President and Chief
Technology Officer
</TABLE>

- ---------------
(1) Includes $175,000 which has been deferred.
(2) Includes our matching contributions made under our 401(k) plan on behalf of
such executive officer.
(3) Includes $5,100 in insurance premiums paid on behalf of Mr. Rudolph.
(4) Mr. Warstler joined the Company in July 1999, his annual salary for 1999 was
$225,000.
(5) Includes $10,012 in relocation expenses paid on behalf of Mr. Warstler.
(6) Mr. Grina joined the Company in April 1999, his annual salary for 1999 was
$225,000.
(7) Includes $63,030 in relocation expenses paid on behalf of Mr. Grina.
(8) Includes $750 in relocation expenses paid on behalf of Mr. Wheeling.

OPTION GRANTS IN LAST FISCAL YEAR

The following table shows information regarding stock options granted to
the named executive officers during the fiscal year ended December 31, 1999. The
potential realizable value is based on the assumption that our common stock
appreciates at the annual rate shown, compounded annually, from the date of
grant until the expiration of the ten-year term. These numbers are calculated
based on Securities and Exchange

51
<PAGE> 55

Commission requirements and do not reflect projections or estimates of future
stock price growth. Potential realizable values are computed by:

- multiplying the number of shares of common stock underlying each option
by the fair market value of our common stock on the date of grant;

- assuming that the total stock value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table for the entire
ten-year term of the option; and

- subtracting from that result the total option exercise price.

Actual gains, if any, on stock option exercises will be dependent on the
future performance of our common stock.

The percentage of total options is based on options to purchase an
aggregate of 9,003,000 shares of common stock granted by us during the fiscal
year ended December 31, 1999, to our employees, directors and consultants,
including the named executive officers. Options were granted with an exercise
price equal to the fair market value of our common stock, as determined in good
faith by our board of directors.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------------------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR SHARE DATE 5% 10%
- ---- ---------- ------------ --------- ---------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Clifford G. Rudolph...... 1,750,000(1) 19.43% $1.184 October 27, 2009 $1,303,070 $3,302,234
Robert T. Warstler....... 500,000(2) 5.55% 1.184 July 18, 2009 372,305 943,495
Thomas A. Grina.......... 500,000(3) 5.55% 1.184 June 1, 2009 372,305 943,495
Curtis E. Wheeling....... 250,000(1) 2.78% 1.184 October 27, 2009 186,152 471,747
</TABLE>

- ---------------
(1) On July 1, 1999, these options vested as to one-fourth of the shares; on
July 1, 2000, these options will vest as to an additional one-fourth of the
shares and they will vest thereafter as to one forty-eighth of the shares
each month.

(2) On July 19, 2000, these options will vest as to one-fourth of the shares; on
July 19, 2001, these options will vest as to an additional one-fourth of the
shares and they will vest thereafter as to one forty-eighth of the shares
each month.

(3) On April 26, 2000, these options will vest as to one-fourth of the shares;
on April 26, 2001, these options will vest as to an additional one-fourth of
the shares and they will vest thereafter as to one forty-eighth of the
shares each month.

AGGREGATE OPTION EXERCISES DURING LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

The following table presents information regarding the named executive
officers, concerning option exercises for the year ended December 31, 1999 and
exercisable and unexercisable options held as of December 31, 1999. The value of
unexercised in-the-money options is based on a price of $3.552 per share, the
fair market value of our stock on December 31, 1999 as determined by our board
of directors, minus the per share exercise price, multiplied by the number of
shares underlying the option.

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT DECEMBER 31, 1999 AT DECEMBER 31, 1999
ACQUIRED ON ---------------------------- ----------------------------
NAME EXERCISE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Clifford G. Rudolph................. -- 437,500 1,312,500 $1,554,000 $4,662,000
Robert T. Warstler.................. -- -- 500,000 -- 1,776,000
Thomas A. Grina..................... -- -- 500,000 -- 1,776,000
Curtis E. Wheeling.................. -- 62,500 187,500 222,000 666,000
</TABLE>

52
<PAGE> 56

INCENTIVE STOCK PLANS

1998 Stock Plan

Our 1998 Stock Plan was approved by our board of directors and our
stockholders in December 1998. The 1998 Stock Plan provides for the grant to our
employees (including officers and employee directors) of incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended, and for the grant of nonstatutory stock options and stock purchase
rights to our employees, directors and consultants. Our board of directors has
decided not to grant any additional options or stock purchase rights under the
1998 Stock Plan as of the effective date of this offering. However, the 1998
Stock Plan will continue to govern the terms and conditions of the outstanding
awards granted under the 1998 Stock Plan.

Administration of the 1998 Stock Plan. The 1998 Stock Plan is currently
administered by the compensation committee of our board of directors, which
selects the optionees, determines the number of shares to be subject to each
option, determines the exercise price of each option, and determines the terms
and conditions of each grant. In April 2000, our board of directors delegated
authority to Clifford G. Rudolph, our Chairman, Chief Executive Officer and
Secretary to select optionees, determine the number of shares subject to
options, determine the exercise price of each option and determine the terms and
conditions of each grant, consistent with past practices, to all eligible
participants except executive officers and directors.

Number of Shares of Common Stock Available under the 1998 Stock Plan. The
1998 Stock Plan authorizes the issuance of an aggregate of up to 12,426,750
shares of common stock. As of March 31, 2000, options and stock purchase rights
to purchase up to an aggregate of 10,426,750 shares of common stock were
outstanding under the 1998 Stock Plan, no shares had been issued pursuant to the
exercise of options and an aggregate of 2,000,000 shares of common stock
remained available for future grants.

Options. The exercise price of all incentive stock options granted under
the 1998 Stock Plan must be at least equal to the fair market value of the
common stock on the date of grant. The exercise price of all nonstatutory stock
options granted under the 1998 Stock Plan shall be determined by the board of
directors, but in no event may be less than 85% of the fair market value on the
date of grant. With respect to any participant who owns stock possessing more
than 10% of the voting power of all classes of our stock, the exercise price of
any incentive stock option granted must equal at least 110% of the fair market
value on the grant date and the maximum term of any such incentive stock option
may not exceed five years. The term of all other options granted under the 1998
Stock Plan may not exceed ten years.

Transferability of Options. Our 1998 Stock Plan generally does not allow
for the transfer of options or stock purchase rights, and, during the lifetime
of the optionee, only the optionee may exercise an option.

Stock Purchase Rights. The 1998 Stock Plan also provides for the grant of
stock purchase rights. The shares of our common stock that are purchased upon
the exercise of a stock purchase right may be fully vested or unvested. Any
unvested shares will vest in accordance with a schedule determined by the Plan
administrator at the time of grant. We will have the right to purchase any
unvested shares upon the optionee's termination of service.

Adjustments on Merger or Asset Sale. If we merge with or into another
corporation or sell substantially all of our assets, the 1998 Stock Plan
requires that each outstanding option and stock purchase right be assumed or an
equivalent option or right substituted by the successor corporation; provided,
however, that in the event the successor corporation refuses to assume or
substitute for the outstanding options and stock purchase rights, such options
and rights will become fully vested and exercisable for a period of 15 days
after notice from the administrator of the 1998 Stock Plan. The options and
rights will terminate at the end of such 15 day notice period.

Amendment and Termination. Unless terminated sooner, the 1998 Stock Plan
will terminate ten years from its effective date. Our board of directors has
authority to amend or terminate the 1998 Stock

53
<PAGE> 57

Plan, provided that no such action may impair the rights of the holder of any
outstanding options without the written consent of such holder.

2000 Equity Incentive Plan

Our board of directors adopted the 2000 Equity Incentive Plan, referred to
as the Incentive Plan, in April 2000 and our stockholders are expected to
approve the Incentive Plan in April 2000. Our Incentive Plan is the successor
equity incentive plan to our 1998 Stock Plan. Our board of directors has not
granted any options under the 2000 Stock Plan as of the effective date of this
offering.

The purpose of the Incentive Plan is to provide us with a continued
opportunity to retain and attract employees, directors and consultants who are
essential to our future growth and success by providing such individuals with an
opportunity to acquire shares of our common stock. Our Incentive Plan provides
for the grant of nonstatutory stock options to our employees, directors and
consultants and to the employees, directors and consultants of any parent or
subsidiary corporation, and for the grant of incentive stock options, within the
meaning of Section 422 of the Internal Revenue Code, to our employees and to the
employees of any parent or subsidiary corporation.

Number of Shares of Common Stock Available under the Incentive Plan. A
total of 17,202,429 shares of our common stock are authorized for issuance under
the Incentive Plan. On the first day of each fiscal year during the term of the
Incentive Plan, beginning with our fiscal year 2001, the number of shares
available for issuance under our Incentive Plan will increase by an amount of
shares equal to the lesser of 3.5% of the outstanding shares of our common stock
on the last day of our immediately preceding fiscal year, 4,000,000 shares or a
lesser amount as our board may determine.

Administration of the Incentive Plan. Our board of directors or a
committee of our board administers the Incentive Plan. In the case of options
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Internal Revenue Code, the committee will consist of two
or more "outside directors" within the meaning of Section 162(m) of the Internal
Revenue Code. The administrator has the power to determine the terms of the
options granted, including the exercise price, the number of shares subject to
each option, the exercisability of the options and the form of consideration
payable upon exercise. In April 2000, our board of directors delegated authority
to Clifford G. Rudolph, our Chairman, Chief Executive Officer and Secretary to
select optionees, determine the number of shares subject to options, determine
the exercise price of each option and determine the terms and conditions of each
grant, consistent with post practices, to all eligible participants except
executive officers and directors.

Options. The administrator determines the exercise price of options
granted under the Incentive Plan, but with respect to nonstatutory stock options
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Internal Revenue Code and all incentive stock options, the
exercise price must at least be equal to the fair market value of our common
stock on the date of grant. The term of an incentive stock option may not exceed
10 years, except that with respect to any participant who owns 10% of the voting
power of all classes of our outstanding capital stock, the term must not exceed
five years and the exercise price must equal at least 110% of the fair market
value on the grant date. The administrator determines the term of all other
options.

No optionee may be granted an option to purchase more than 1,750,000 shares
in any calendar year. However, in an individual's first calendar year of
employment, he or she may be granted options to purchase up to 2,250,000 shares.

After termination of one of our employees, directors or consultants, he or
she may exercise his or her option for the period of time stated in the option
agreement. Generally, if termination is due to death or disability, the option
will remain exercisable for 12 months. In all other cases, the option will
generally remain exercisable for three months. However, an option may never be
exercised later than the expiration of its term.

54
<PAGE> 58

Automatic Grants to Nonemployee Directors. Our Incentive Plan provides for
the periodic automatic grant of options to our nonemployee directors, who are
not affiliated with the investors in our preferred stock. Each option granted
under this automatic grant provision will have an exercise price per share equal
to 100% of the fair market value per share of our common stock on the date of
grant, and will have a term of 10 years, unless terminated earlier upon the
optionee's termination of service as a director. These options will vest one
quarter on the date of grant and the remainder over a period of three years from
the date of grant, but only if the director remains on our board.

A nonemployee director will automatically be granted an option to purchase
100,000 shares of our common stock on the later of the effective date of the
Incentive Plan, or the date the individual first becomes a nonemployee director,
whether by appointment by our board or election by our stockholders. An employee
director who ceases to be an employee will not be eligible to receive this
initial grant. Each of these options will become vested and exercisable over
three years from the date of the grant date, assuming the director remains on
our board.

The other terms and conditions of the options automatically granted to
nonemployee directors under the Incentive Plan will be governed by the terms of
our Incentive Plan.

Transferability of Options. Our Incentive Plan generally does not allow
for the transfer of options and only the optionee may exercise an option during
his or her lifetime. The administrator may, however, allow options to be
transferable.

Adjustments upon Merger or Asset Sale. Our Incentive Plan provides that if
we merge with or into another corporation or sell substantially all of our
assets, the successor corporation will assume or substitute each option. If the
outstanding options are not assumed or substituted, the administrator will
provide notice to the optionee that he or she has the right to exercise the
option as to all of the shares subject to the option, including shares which
would not otherwise be exercisable, for a period of 15 days from the date of the
notice. The option or stock purchase right will terminate upon the expiration of
the 15-day period.

Amendment and Termination of our Incentive Plan. Our Incentive Plan will
automatically terminate in 2010, unless we terminate it sooner. In addition, our
board of directors has the authority to amend, suspend or terminate the
Incentive Plan provided it does not adversely affect any option previously
granted under our Incentive Plan.

2000 Employee Stock Purchase Plan

Our board of directors adopted the 2000 Employee Stock Purchase Plan,
referred to as the Purchase Plan, in April 2000 and our stockholders are
expected to approve the Purchase Plan in April 2000. Our Purchase Plan provides
eligible employees the opportunity to purchase shares of our common stock at a
discount through payroll deductions.

Number of Shares of Common Stock Available under the Purchase Plan. A
total of 5,800,000 shares of our common stock are authorized for issuance under
the Purchase Plan. In addition, the number of shares authorized for issuance
under the Purchase Plan will increase annually on the first day of each fiscal
year, beginning with our fiscal year 2001, equal to the lesser of 1% of the
outstanding shares of our common stock on the last day of the immediately
preceding fiscal year, 1,200,000 shares, or such other amount as may be
determined by our board of directors.

Administration of the Purchase Plan. Our board of directors or a committee
of our board administers the Purchase Plan. Our board of directors or its
committee has full and exclusive authority to interpret the terms of the
Purchase Plan and determine eligibility.

55
<PAGE> 59

Eligibility to Participate. All of our 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, an employee may not be granted an option to purchase
stock under the Purchase Plan if such employee:

- immediately after grant owns stock possessing 5% or more of the total
combined voting power or value of all classes of our capital stock, or

- whose rights to purchase stock under all of our employee stock purchase
plans accrues at a rate that exceeds $25,000 worth of stock for each
calendar year.

Offering Periods and Contributions. Our Purchase Plan is intended to
qualify under Section 423 of the Internal Revenue Code and contains consecutive,
overlapping 24-month offering periods. Each offering period includes four
6-month purchase periods. The offering periods generally start on the first
trading day on or after April 30 and October 31 of each year, except for the
first such offering period which will commence on the first trading day on or
after the date of this prospectus and will end on the last trading day on or
after April 30, 2002.

Our Purchase Plan permits participants to purchase common stock through
payroll deductions of up to 10% of their eligible compensation which includes a
participant's base salary or wages, bonus and commissions. However, in no event
may a participant purchase more than 2,500 shares during a 6-month purchase
period.

Purchase of Shares. Amounts deducted from a participant's eligible
compensation and accumulated during a six-month purchase period are used to
purchase shares of our common stock at the end of any purchase period. The price
is 85% of the lower of the fair market value of our common stock at the
beginning of an offering period or at the end of a purchase period. If the fair
market value at the end of a purchase period is less than the fair market value
at the beginning of the offering period, participants will be withdrawn from the
current offering period following their purchase of shares on the purchase date
and will be automatically re-enrolled in a new offering period. Participants may
end their participation at any time during an offering period, and will be paid
their payroll deductions to date. Participation ends automatically upon
termination of employment with us.

Transferability of Rights. A participant may not transfer rights granted
under the Purchase Plan other than by will, the laws of descent and distribution
or as otherwise provided under the Purchase Plan.

Adjustments upon Merger or Asset Sale. If we merge with or into another
corporation or sell all or substantially all of our assets, a successor
corporation may assume or substitute each outstanding option. If the successor
corporation refuses to assume or substitute for the outstanding options, the
offering period then in progress will be shortened, and a new exercise date will
be set.

Amendment and Termination of the Purchase Plan. Our Purchase Plan will
terminate in 2010. However, our board of directors has the authority to amend or
terminate our Purchase Plan, except that, subject to certain exceptions
described in the Purchase Plan, no such action may adversely affect any
outstanding rights to purchase stock under our Purchase Plan.

401(k) PLAN

We adopted a retirement savings plan that covers all of our employees. An
employee may elect to defer, in the form of contributions to the 401(k) Plan, up
to 15% of the total annual compensation that would otherwise be paid to the
employee, subject to statutory limitations. Employee contributions are invested
in selected mutual funds or money market funds according to the directions of
the employee. We may make matching contributions as a percentage of employee
contributions, subject to established limits. The employees' contributions are
fully vested and nonforfeitable at all times.

56
<PAGE> 60

EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS

We have entered into employment agreements with the following named
executive officers:

Clifford G. Rudolph. In November 1999, we entered into an employment
agreement with Clifford G. Rudolph. Mr. Rudolph is currently entitled to an
annual salary of $350,000 and an annual bonus of up to 100% of his annual
base salary.

Robert T. Warstler. In December 1999, we entered into an employment
agreement with Robert T. Warstler. Mr. Warstler is currently entitled to an
annual salary of $275,000 and an annual bonus of up to 100% of his annual
base salary.

Thomas A. Grina. In December 1999, we entered into an employment
agreement with Thomas A. Grina. Mr. Grina is currently entitled to an
annual salary of $275,000 and an annual bonus of up to 100% of his annual
base salary.

Curtis E. Wheeling. In December 1999, we entered into an employment
agreement with Curtis E. Wheeling. Mr. Wheeling is currently entitled to an
annual salary of $175,000 and an annual bonus of up to 100% of his annual
base salary.

Other than Mr. Rudolph, each of the named executive officers has provisions
in his employment agreement which provides that, in the case of involuntary
termination without cause or voluntary termination for good reason, where
termination does not occur within 18 months after a change of control, the
executive officer will receive a lump sum payment equal to 100% of his or her
annual salary and target bonus, 12 months vesting of unvested stock options and
four years to exercise any remaining stock options and continued eligibility for
company-paid health benefits for himself and his eligible dependents for 18
months. In addition, such executive officer will continue to receive his or her
existing base salary for six months following termination and will receive 50%
of his or her target bonus within six months following termination. In the case
of involuntary termination without cause or voluntary termination for good
reason, where termination occurs within 18 months after a change of control,
such executive officer will receive 100% vesting of remaining stock options and
continued eligibility for company-paid health benefits for the executive and his
eligible dependents for two years. In the case of termination due to death or
disability, the executive officer will receive 50% vesting of stock options and
continued payment of benefits for two years.

Mr. Rudolph's employment agreement provides that, in the case of
involuntary termination without cause, voluntary termination for good reason or
any voluntary termination within 90 days after a change of control, Mr. Rudolph
will receive a lump sum payment equal to 100% of his base salary and target
bonus, 100% vesting of stock options and four years to exercise any remaining
stock options, continued eligibility for company-paid health benefits for the
executive and his eligible dependents for two years and full tax-neutral
relocation costs, including home sale loss protection, from Santa Rosa,
California to Los Altos Hills, California. In addition, Mr. Rudolph will
continue to receive his base salary and target bonus for a period of two years
after termination. In the case of termination due to death or disability, Mr.
Rudolph will receive 100% vesting of his stock options and continued eligibility
for company-paid health benefits for three years.

57
<PAGE> 61

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ISSUANCES OF PREFERRED STOCK

The following table summarizes the shares of preferred stock purchased by
our executive officers, directors and 5% stockholders, and persons and entities
associated with them, in private placement transactions since December 31, 1998:

<TABLE>
<CAPTION>
SHARES OF SHARES OF
SERIES B SERIES D
PREFERRED PREFERRED
PURCHASER STOCK STOCK
- --------- ---------- ----------
<S> <C> <C>
Entities affiliated with Norwest Venture Partners(1)........ 10,125,000 4,504,504
Entities affiliated with Texas Pacific Group(2)............. -- 15,090,088
Entities affiliated with JP Morgan Capital Corporation(3)... 7,593,750 3,378,370
Entities affiliated with Alta Communications(4)............. 7,593,750 1,126,126
Entities affiliated with Centennial Fund.................... 6,075,000 2,252,252
Telecom Partners II, L.P. .................................. 6,075,000 1,126,126
First Union Capital Partners................................ 5,062,500 2,252,252
Entities affiliated with AT&T Ventures...................... 5,062,500 563,063
</TABLE>

- ---------------
(1) Includes 7,314,752 shares held by Norwest Venture Partners, VI, L.P., and
7,314,752 shares held by Norwest Equity Partners VI, L.P. Blair P. Whitaker,
one of our directors, is affiliated with these entities. Mr. Whitaker
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest. See "Principal Stockholders" for further information.

(2) Includes 12,857,075 shares held by TPG Partners II, L.P., 1,341,126 shares
held by TPG Investors II, L.P., 877,401 shares held by TPG Parallel, L.P.
and 14,486 shares held by TPG 1999 Equity Partners II, L.P. William S.
Price, one of our directors, is affiliated with these entities. Mr. Price
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest. See "Principal Stockholders" for further information.

(3) Includes 9,766,443 shares held by J.P. Morgan Investment Corporation, and
1,205,677 shares held by Sixty Wall Street SBIC Fund, L.P. John Watkins, one
of our directors, is affiliated with these entities. Mr. Watkins disclaims
beneficial ownership of these shares except to the extent of his pecuniary
interest. See "Principal Stockholders" for further information.

(4) Includes 8,714,826 shares held by Alta Communications VII, L.P., and 5,050
shares held by Alta VII Associates LLC. Robert F. Benbow, one of our
directors, is affiliated with these entities. Mr. Benbow disclaims
beneficial ownership of these shares except to the extent of his pecuniary
interest. See "Principal Stockholders" for further information.

OPTION GRANTS TO EXECUTIVE OFFICERS AND DIRECTORS

The table below lists the name of the executive officer or director, the
number of stock options granted and the exercise price per share of all options
granted to such individuals since December 31, 1998:

<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
NAME OPTIONS PER SHARE
- ---- --------- --------------
<S> <C> <C>
Clifford G. Rudolph......................................... 1,750,000 $1.184
Thomas A. Grina............................................. 500,000 $1.184
Robert T. Warstler.......................................... 500,000 $1.184
Curtis E. Wheeling.......................................... 250,000 $1.184
</TABLE>

58
<PAGE> 62

OTHER TRANSACTIONS

In September 1999, we acquired all of the outstanding common stock of
NewComm Net, Inc. by issuing 1,250,458 shares of our common stock. John G.
Puente, one of our directors, was a stockholder of NewComm Net. Mr. Puente
received 155,191 shares of our common stock in exchange for his shares of
NewComm Net.

Prior to the closing of this offering, each share of our Series A Preferred
Stock will automatically convert into one share of common stock and one share of
redeemable preferred stock. Upon this conversion, we will redeem all of the
outstanding shares of redeemable preferred stock for $1.4815 per share. The
table below sets forth the amount of shares that will be redeemed and the total
consideration received by each of our executive officers, directors and greater
than 5% stockholders upon our redemption of our redeemable preferred stock:

<TABLE>
<CAPTION>
NUMBER OF TOTAL
NAME SHARES CONSIDERATION
- ---- --------- -------------
<S> <C> <C>
Entities affiliated with Norwest Venture Partners(1)........ 226,125 $335,004
Entities affiliated with Alta Communications(2)............. 226,125 $335,004
Entities affiliated with Centennial Funds(3)................ 226,125 $335,004
Telecom Partners II, L.P. .................................. 226,125 $335,004
Clifford G. Rudolph(4)...................................... 135,000 $200,003
</TABLE>

- ---------------
(1) The shares represented hereby are held by Norwest Venture Partners VI, L.P.
Blair P. Whitaker, one of our directors, is an affiliate of these entities.
Mr. Whitaker disclaims beneficial ownership of these shares except to the
extent of his pecuniary interest. See "Principal Stockholders" for further
information.

(2) The shares represented hereby are held by Alta Communications VII, L.P.
Robert Benbow, one of our directors, is affiliated with these entities. Mr.
Benbow disclaims beneficial ownership of these shares except to the extent
of his pecuniary interest. See "Principal Stockholders" for further
information.

(3) The shares represented hereby are held by Centennial Funds V, L.P. and
Centennial Entrepreneurs Fund V, L.P. See "Principal Stockholders" for
further information.

(4) The shares represented hereby are held by the Rudolph Family 1997 Trust
dated 10/10/97, of which, Clifford G. Rudolph, our Chairman of the Board,
Chief Executive Officer and Secretary, is the trustee. See "Principal
Stockholders" for further information.

INDEMNIFICATION

We have entered into indemnification agreements with each of our directors
and officers. These indemnification agreements require and our certificate of
incorporation and bylaws will require us to indemnify our directors and officers
to the fullest extent permitted by Delaware law.

All future transactions, including any loans from us to our officers,
directors, principal stockholders or affiliates, will be approved by a majority
of the board of directors, including a majority of the independent and
disinterested members of the board of directors or, if required by law, a
majority of disinterested stockholders, and will be on terms no less favorable
to us than could be obtained from unaffiliated third parties.

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<PAGE> 63

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of our common stock as of March 31, 2000, with respect to:

- each person, or group of affiliated persons, known by us to own
beneficially more than 5% of our outstanding shares of common stock;

- each of our directors;

- each of our named executive officers; and

- all of our directors and executive officers as a group.

Beneficial ownership is determined in accordance with the rules and
regulations of the Securities and Exchange Commission. In computing the number
of shares beneficially owned by a person and the percentage of ownership of that
person, the common stock subject to stock options held by that person that are
currently exercisable or exercisable within 60 days of the date of this
prospectus, are deemed outstanding for that person, but are not deemed
outstanding for the purpose of calculating the percentage ownership of any other
person.

Unless otherwise indicated in the footnotes to the table below, the address
for each individual listed below is 110 Stony Point Road, Second Floor, Santa
Rosa, California 95401. Except as otherwise indicated, each stockholder has sole
voting and investment power with respect to the shares beneficially owned by
such stockholder, subject to community property laws where applicable.

Percent of beneficial ownership is based upon 114,682,857 shares of our
common stock outstanding as of March 31, 2000 and shares of our common
stock outstanding after this offering.

<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF SHARES
SHARES BENEFICIALLY OWNED
BENEFICIALLY --------------------------------
NAME OF BENEFICIAL OWNER OWNED BEFORE OFFERING AFTER OFFERING
- ------------------------ ------------ --------------- --------------
<S> <C> <C> <C>
Entities affiliated with Norwest Venture Partners(1)..... 18,230,629 15.90%
Blair P. Whitaker(1)..................................... 18,230,629 15.90
Entities affiliated with Texas Pacific Group(2).......... 15,090,088 13.16
William S. Price(2)...................................... 15,090,088 13.16
Entities affiliated with JP Morgan Capital
Corporation(3)......................................... 13,503,370 11.77
John Watkins(3).......................................... 13,503,370 11.77
Entities affiliated with Alta Communications, L.P.(4).... 11,477,251 10.00
Robert F. Benbow(4)...................................... 11,477,251 10.00
Entities affiliated with Centennial Fund, L.P.(5)........ 10,578,377 9.22
Telecom Partners II, L.P.(6)............................. 9,452,251 8.24
First Union Capital Partners(7).......................... 9,002,252 7.85
Entities affiliated with AT&T Ventures(8)................ 7,313,063 6.38
Clifford G. Rudolph(9)................................... 2,981,550 2.59
Curtis E. Wheeling (10).................................. 683,000 *
John G. Puente(11)....................................... 180,191 *
Thomas A. Grina(12)...................................... 125,000 *
Robert T. Warstler....................................... -- *
All directors and executive officers as a group
(10 persons)(13)....................................... 62,271,079 54.30%
</TABLE>

- ---------------
* Represents holdings of less than one percent of the outstanding shares of
common stock.

(1) Includes 9,228,377 shares held by Norwest Venture Partners, VI, L.P., and
9,002,252 shares held by Norwest Equity Partners VI, L.P. Blair P.
Whitaker, one of our directors, is affiliated with these

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<PAGE> 64

entities. Mr. Whitaker disclaims beneficial ownership of these shares
except to the extent of his pecuniary interest. The address for Mr.
Whitaker and each of these entities is 245 Lytton Ave., Suite 250, Palo
Alto, California 94031.

(2) Includes 12,857,075 shares held by TPG Partners II, L.P., 1,341,126 shares
held by TPG Investors II, L.P., 877,401 shares held by TPG Parallel, L.P.
and 14,486 shares held by TPG 1999 Equity Partners II, L.P. William S.
Price, one of our directors, is affiliated with these entities. Mr. Price
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest. The address for Mr. Price and each of these entities is
345 California Street, Suite 3300, San Francisco, California 94104.

(3) Includes 12,171,143 shares held by J.P. Morgan Investment Corporation, and
1,332,217 shares held by Sixty Wall Street SBIC Fund, L.P. John Watkins,
one of our directors, is affiliated with these entities. Mr. Watkins
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest. The address for Mr. Watkins and each of these entities
is 101 California St., 37th Floor, San Francisco, California 94111.

(4) Includes 11,470,501 shares held by Alta Communications VII, L.P., and 6,750
shares held by Alta VII Associates LLC. Robert F. Benbow, one of our
directors, is affiliated with these entities. Mr. Benbow disclaims
beneficial ownership of these shares except to the extent of his pecuniary
interest. The address for Mr. Benbow and each of these entities is One
Embarcadero Center, Suite 4050, San Francisco, California 94111.

(5) Includes 8,752,016 shares held by Centennial Fund V, L.P., 249,784 shares
held by Centennial Entrepreneurs Fund V, L.P., 30,172 shares held by
Centennial Holdings I, LLC, 1,433,256 shares held by Centennial Fund VI,
L.P., 37,715 shares held by Centennial Entrepreneurs Fund VI, L.P. and
75,434 shares held by Centennial Strategic Partners VI, L.P. The address
for each of these entities is 1428 15th St., Denver, Colorado 80202.

(6) The address for Telecom Partners II, L.P. is 3200 Cherry Creek South Drive,
Suite 450, Denver, Colorado 80209.

(7) The address for First Union Capital Partners is One First Union Center,
Charlotte, North Carolina 28288.

(8) Includes 3,472,133 shares held by Special Partners Fund International,
L.P., 3,217,747 shares held by AT&T Venture Fund II, L.P., and 623,183
shares held by Special Partners Fund, L.P. The address for these entities
is 3000 Sand Hill Road, Bldg. 1, Suite 285, Menlo Park, California 94025.

(9) Includes 2,544,050 shares held by The Rudolph Family 1997 Trust Dated
10/10/97, of which, Clifford G. Rudolph, our Chairman of the Board and
Chief Executive Officer is the trustee. Also includes 437,500 shares
issuable upon the exercise of options exercisable within 60 days of March
31, 2000.

(10) Includes 62,500 shares issuable upon the exercise of options exercisable
within 60 days of March 31, 2000.

(11) Includes 25,000 shares issuable upon the exercise of options exercisable
within 60 days of March 31, 2000.

(12) Includes 125,000 shares issuable upon the exercise of options exercisable
within 60 days of March 31, 2000.

(13) Includes 212,500 shares issuable upon the exercise of options exercisable
within 60 days of March 31, 2000.

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<PAGE> 65

DESCRIPTION OF CAPITAL STOCK

Upon the closing of this offering, our authorized capital stock will
consist of 1,000,000,000 shares of common stock, $.0001 par value, and
25,000,000 shares of undesignated preferred stock, $.0001 par value. The
following summary of certain provisions of the common stock and preferred stock
does not purport to be complete and is subject to, and qualified in its entirety
by, the provisions of our certificate of incorporation.

COMMON STOCK

At March 31, 2000, there were 114,682,857 shares of common stock held of
record by 72 stockholders and options to purchase up to an aggregate of
10,426,750 shares of common stock outstanding. The holders of common stock are
entitled to one vote for each share held of record upon matters and in a manner
as provided by law. Subject to preferences applicable to any outstanding shares
of preferred stock, the holders of common stock are entitled to receive
dividends ratably, if any, as may be declared by the board of directors out of
funds legally available for dividend payments. See "Dividend Policy." In the
event we liquidate, dissolve or wind up, the holders of our common stock are
entitled to share ratably in all assets remaining after payment of liabilities
and liquidation preferences of any outstanding shares of preferred stock.
Holders of common stock have no preemptive rights or rights to convert their
common stock into any other securities. There are no redemption or sinking fund
provisions applicable to the common stock. All outstanding shares of common
stock are fully paid and nonassessable.

PREFERRED STOCK

The board of directors has the authority, without action by our
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, any or all
of which may be greater than the rights of the common stock. We cannot state the
actual effect of the issuance of any shares of preferred stock upon the rights
of holders of the common stock until the board of directors determines the
specific rights of the holders of such preferred stock. However, the effects
might include, among other things, restricting dividends on the common stock,
diluting the voting power of the common stock, impairing the liquidation rights
of the common stock, establishing a sinking fund and delaying or preventing a
change in control without further action by the stockholders. We have no present
plans to issue any shares of preferred stock.

REGISTRATION RIGHTS

As of March 31, 2000, the holders of 113,432,428 shares of common stock or
their permitted transferees are entitled to the following rights with respect to
the registration of the shares they hold under the Securities Act:

Demand Registrations. At any time on or after six months following
the closing of this offering, the holders of shares of common stock issued
upon conversion of our preferred stock may request us to register shares of
our common stock having an aggregate offering price of at least $5 million.
However, we will be obligated to effect only three registrations on Form
S-1. If shares requested to be included in a registration must be excluded
due to limitations on the number of shares to be registered on behalf of
the selling stockholders pursuant to the underwriters' advice, the shares
registered on behalf of the selling stockholders will be allocated among
all holders of shares with rights to be included in the registration on the
basis of the number of shares of common stock with such rights held by such
stockholders.

Piggyback Registration Rights. The holders of common stock issued
upon conversion of our preferred stock have unlimited rights to request
that their shares of common stock be included in any company-initiated
registration of common stock other than registrations of employee benefit
plans or business combinations subject to Rule 145 under the Securities
Act. The underwriters may, for marketing reasons, exclude all or part of
the shares requested to be registered on behalf of all stockholders having
the right to request inclusion in such registration. Notwithstanding the
foregoing,
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<PAGE> 66

we have the right to terminate any registration we initiated prior to its
effectiveness regardless of any request for inclusion by any holders of
preferred stock.

Form S-3 Registrations. After we have qualified to register
securities on Form S-3, holders of common stock issued upon conversion of
our preferred stock may request in writing that we effect an unlimited
number of registrations of such shares on Form S-3, provided that, the
aggregate offering price of the shares to be registered in each such
registration exceeds $5,000,000. However, we are not required to keep
effective more than three registrations on Form S-3 pursuant to such
requests. If such registration is to be an underwritten public offering,
the underwriters may reduce, for marketing reasons, the number of shares to
be registered on behalf of all stockholders having the right to request
inclusion in such registration.

Transferability. Registration rights are transferable upon notice by
the holder to us of the transfer and the transferee or assignee is not
deemed by our board of directors to be a competitor of ours and assumes the
rights and obligations of the transferor for such shares and the transfer
is of at least 500,000 shares.

DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS

Certain provisions of Delaware law and our certificate of incorporation and
bylaws could make it more difficult to acquire us by means of a tender offer, a
proxy contest or otherwise and the removal of incumbent officers and directors.
These provisions, summarized below, are expected to discourage certain types of
coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control of us to first negotiate with us. We believe
that the benefits of increased protection of our potential ability to negotiate
with the proponent of an unfriendly or unsolicited proposal to acquire or
restructure us outweigh the disadvantages of discouraging takeover or
acquisition proposals because, among other things, negotiation of these
proposals could result in an improvement of their terms.

Delaware Anti-takeover Law

Upon the closing of this offering, we will be subject to Section 203 of the
Delaware General Corporation Law, an anti-takeover law. In general, Section 203
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date the person became an interested stockholder, unless, with
certain exceptions, the "business combination" or the transaction in which the
person became an interested stockholder is approved in a prescribed manner.
Generally, a "business combination" includes a merger, asset or stock sale, or
other transaction resulting in a financial benefit to the interested
stockholder. Generally, an "interested stockholder" is a person who, together
with affiliates and associates, owns, or within three years prior to the
determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock. The existence of this provision would be expected to
have an anti-takeover effect with respect to transactions not approved in
advance by the board of directors, including discouraging attempts that might
result in a premium over the market price for the shares of common stock held by
stockholders.

Classified Board

Upon the closing of this offering, our board of directors will be divided
into three classes. The directors in each class will serve for a three-year
term; provided, however, that the initial term of class I and II directors will
be one and two years, respectively. This system of electing and removing
directors may tend to discourage a third party from making a tender offer or
otherwise attempting to obtain control of us because it generally makes it more
difficult for stockholders to replace a majority of the directors.

Restrictions on Persons Able to Call Stockholder Meetings

Under our bylaws, only the board of directors, the chairman of the board or
the chief executive officer will be able to call special meetings of
stockholders. A stockholder's inability to call a special meeting of

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<PAGE> 67

stockholders makes it more difficult for stockholders to replace the board of
directors or effect other corporate changes.

Advance Notification of Stockholder Nominations and Proposals

Our bylaws will establish advance notice procedures for stockholder
proposals and the nomination of candidates for election as directors other than
nominations made by or at the direction of the board of directors or a committee
of the board.

No Stockholder Action by Written Consent

Our certificate of incorporation will eliminate the right of stockholders
to act by written consent without a meeting.

Undesignated Preferred Stock

The authorization of undesignated preferred stock makes it possible for the
board of directors to issue preferred stock with voting or other rights or
preferences that could impede the success of any attempt to change control of
our company.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the common stock is Equiserve Trust
Company.

SHARES ELIGIBLE FOR FUTURE SALE

Immediately prior to this offering, there was no public market for our
common stock. We cannot assure you that a significant public market for our
common stock will develop or be sustained after this offering. Future sales of
substantial amounts of common stock, including shares issued upon exercise of
stock options, in the public market could adversely affect the market price of
the common stock and could impair our ability to raise capital through the sale
of our equity securities.

Upon completion of this offering, we will have outstanding shares
of common stock, assuming the issuance of shares of common stock
offered by us, no exercise of outstanding options and no exercise of the
underwriters' over-allotment option. All of the shares sold in this offering
will be freely tradable without restriction or further registration under the
Securities Act, except that any shares purchased by our affiliates as that term
is defined in Rule 144 may generally only be sold only in compliance with Rule
144 summarized below. Generally, affiliates include executive officers,
directors and greater than 10% stockholders.

Giving effect to the lock-up agreements and assuming Salomon Smith Barney
Inc. does not release stockholders from these agreements, the following shares
will be eligible for sale in the public market at the following times:

<TABLE>
<CAPTION>
ELIGIBILITY OF RESTRICTED SHARES
FOR SALE IN THE PUBLIC MARKET
--------------------------------
<S> <C>
Immediately after the date of this prospectus...............
Immediately after 180 days from the date of this
prospectus................................................
</TABLE>

LOCK-UP AGREEMENTS

Our directors, officers and substantially all of our stockholders have
entered into lock-up agreements in connection with this offering. These lock-up
agreements generally provide that they will not offer, sell, contract to sell or
grant any option to purchase or otherwise dispose of our common stock or any
securities exercisable for or convertible into our common stock without the
prior written consent of Salomon Smith Barney Inc. The lock-up restrictions will
expire on the date which is 180 days after the date of this prospectus. However,
Salomon Smith Barney Inc. may waive these restrictions at any time in its
discretion
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<PAGE> 68

before the end of the 180 day lock-up period. Notwithstanding possible earlier
eligibility for sale under the provisions of Rules 144, 144(k) and 701, shares
subject to lock-up agreements will not be eligible for resale until these
agreements expire or are waived by Salomon Smith Barney Inc.

RULE 144

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of:

- 1% of the number of shares of common stock then outstanding, which will
equal shares immediately after this offering; or

- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.

Sales under Rule 144 are also subject to certain other requirements
regarding the manner of sale, notice filing and the availability of current
public information about us.

RULE 144(k)

Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate of us,
is entitled to sell such shares without complying with the manner of sale,
notice filing, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering.

RULE 701

In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchase shares from us in connection with a
compensatory stock or option plan or other written agreement before the
effective date of this offering is entitled to resell such shares 90 days after
the effective date of this offering in reliance on Rule 144 subject to the
contractual restrictions described above. Securities issued in reliance on Rule
701 are restricted securities and, subject to the contractual restrictions
described above, beginning 90 days after the date of this prospectus, may be
sold by persons other than "affiliates," as defined in Rule 144, subject only to
the manner of sale provisions of Rule 144 and by "affiliates" under Rule 144
without compliance with its one year minimum holding period requirement.

ADDITIONAL REGISTRATIONS

We intend to file a registration statement within 180 days of the date of
this prospectus to register shares of common stock reserved for issuance under
our 1998 Stock Plan, 2000 Equity Incentive Plan and our 2000 Employee Stock
Purchase Plan. See "Management -- Incentive Stock Plans." Additionally, upon
completion of this offering and expiration of 180 days, holders of 113,432,428
shares of our common stock will have registration rights which, upon exercise,
will require us to file registration statements covering the sale of their
shares of common stock to the public or to include their shares in registration
statements covering the sale of our shares of common stock to the public. See
"Description of Capital Stock -- Registration Rights."

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<PAGE> 69

UNDERWRITING

Subject to the terms and conditions stated in the underwriting agreement
dated , 2000, each underwriter named below has severally agreed to
purchase, and we have agreed to sell to the underwriter, the number of shares
set forth opposite the name of such underwriter.

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---- ---------
<S> <C>
Salomon Smith Barney Inc. ..................................
Credit Suisse First Boston Corporation......................
Lehman Brothers Inc. .......................................
First Union Securities, Inc. ...............................
J.P. Morgan & Co., Inc. ....................................
--------
Total.............................................
--------
</TABLE>

The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all the shares, other than those
covered by the over-allotment option described below, if they purchase any of
the shares.

The underwriters, for whom Salomon Smith Barney Inc., Credit Suisse First
Boston Corporation, Lehman Brothers Inc., First Union Securities, Inc. and J.P.
Morgan & Co., Inc. are acting as representatives, propose to offer some of the
shares directly to the public at the public offering price set forth on the
cover page of this prospectus and some of the shares to selected dealers at the
public offering price less a concession not in excess of $ per share. The
underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share on sales to other dealers. If all of the shares are not sold
at the initial offering price, the representatives may change the public
offering price and the other selling terms.

We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to additional shares of
common stock at the public offering price less the underwriting discount. The
underwriters may exercise this option solely for the purpose of covering
over-allotments, if any, in connection with this offering. To the extent the
option is exercised, each underwriter will be obligated, subject to specified
conditions, to purchase a number of additional shares proportionate to that
underwriter's initial purchase commitment.

We, our officers and directors, and all of our other stockholders have
agreed that, for a period of 180 days from the date of this prospectus, we and
they will not, without the prior written consent of Salomon Smith Barney Inc.,
offer, sell, contract to sell, pledge, assign or otherwise dispose of or hedge
any shares of our common stock or any securities convertible into or
exchangeable for our common stock. Salomon Smith Barney Inc. in its sole
discretion may release any of the securities subject to these lock-up agreements
at any time without notice.

At our request Salomon Smith Barney Inc. reserved up to percent of
the shares being offered as directed shares for sale at the initial public
offering price to persons who are directors, officers or our employees, or who
are otherwise associated with us and our affiliates or employees, and who have
advised us of their desire to purchase these shares. The number of shares of
common stock available for sale to the general public will be reduced to the
extent of sales of directed shares to any of the persons for whom they have been
reserved. Any shares not so purchased will be offered by the underwriters on the
same basis as all other shares of common stock offered hereby. We have agreed to
indemnify the underwriters against specified liabilities and expenses, including
liabilities under the Securities Act of 1933, in connection with the sales of
the directed shares.

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<PAGE> 70

First Union Capital Partners, an affiliate of First Union Securities Inc.
acquired 6,750,000 shares of our Series B Preferred Stock and 2,252,252 of our
shares of Series D Preferred Stock. These shares will convert into 9,002,252
shares of our common stock on the closing of this offering. First Union Capital
Partners will be restricted from selling, transferring or hypothecating such
common stock for a period of one year from the date of this prospectus pursuant
to the rules of the National Association of Securities Dealers, Inc.

J.P. Morgan Investment Corporation, an affiliate of J.P. Morgan & Co., Inc.
acquired 9,586,690 shares of our Series B Preferred Stock and 2,584,453 shares
of our Series D Preferred Stock. These shares will convert into 12,171,143
shares of our common stock on the closing of this offering. J.P. Morgan
Investment Corporation will be restricted from selling, transferring or
hypothecating such common stock for a period of one year from the date of this
prospectus pursuant to the rules of the National Association of Securities
Dealers, Inc.

Sixty Wall Street SBIC Fund, L.P., an affiliate of J.P. Morgan & Co., Inc.
acquired 538,310 shares of our Series B Preferred Stock and 793,917 shares of
our Series D Preferred Stock. These shares will convert into 1,332,227 shares of
our common stock on the closing of this offering. Sixty Wall Street SBIC Fund,
L.P. will be restricted from selling, transferring or hypothecating such common
stock for a period of one year from the date of this prospectus pursuant to the
rules of the National Association of Securities Dealers, Inc.

Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for the shares was
determined by negotiations among us and the representatives. Among the factors
considered in determining the initial public offering price were our record of
operations, our current financial condition, our future prospects, our markets,
the economic conditions in and future prospects for the industry in which we
compete, our management, and currently prevailing general conditions in the
equity securities markets, including current market valuations of publicly
traded companies considered comparable to us. There can be no assurance,
however, that the prices at which the shares will sell in the public market
after this offering will not be lower than the price at which they are sold by
the underwriters or that an active trading market in the common stock will
develop and continue after this offering.

We have applied to list our common stock for quotation on the Nasdaq
National Market under the symbol "ATGG."

The following table shows the underwriting discounts and commissions to be
paid to the underwriters by us in connection with this offering. These amounts
are assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares of common stock.

<TABLE>
<CAPTION>
PAID BY ATG
----------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share................................................... $ $
Total.................................................. $ $
</TABLE>

In connection with the offering, Salomon Smith Barney Inc., on behalf of
the underwriters, may purchase and sell shares of common stock in the open
market. These transactions may include over-allotment, syndicate covering
transactions and stabilizing transactions. Over-allotment involves syndicate
sales of common stock in excess of the number of shares to be purchase by the
underwriters in the offering, which creates a syndicate short position.
Syndicate covering transactions involve purchases of the common stock in the
open market after the distribution has been completed in order to cover
syndicate short positions. Stabilizing transactions consist of certain bids or
purchase of common stock made for the purpose of preventing or retarding a
decline in the market price of the common stock while the offering is in
progress.

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<PAGE> 71

The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member.

Any of these activities may cause the price of the common stock to be
higher than the price that otherwise would exist in the open market in the
absence of such transactions. These transactions may be effected on the Nasdaq
National Market or in the over-the-counter market, or otherwise and, if
commenced, may be discontinued at any time.

We estimate that the total expenses of this offering, excluding
underwriting discounts and commissions, will be $ .

The underwriters do not expect shares to discretionary accounts to exceed
five percent of the total number of shares offered.

The representatives may, from time to time, engage in transactions with and
perform services for us in the ordinary course of their business.

We have agreed to indemnify the underwriters against specified liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make in respect of any of those
liabilities.

LEGAL MATTERS

The validity of the shares of common stock offered under this prospectus
will be passed upon for us by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California. Certain other legal matters will be passed
upon for the underwriters by Cravath, Swaine & Moore, New York, New York. As of
the date of this prospectus, investment partnerships composed of certain current
and former members of and persons associated with Wilson Sonsini Goodrich &
Rosati and certain other members of Wilson Sonsini Goodrich & Rosati
beneficially owned an aggregate of 101,781 shares of our common stock.

EXPERTS

Our consolidated financial statements at December 31, 1998 and 1999, for
the period from July 22, 1998 (inception) to December 31, 1998, and for the year
ended December 31, 1999, have been included in the registration statement in
reliance on the report of KPMG LLP, independent auditors, given upon the
authority of such firm as experts in accounting and auditing.

The financial statements of Shared Communications, Inc., at September 30,
1997 and 1998 and for the years ended September 30, 1997 and 1998, have been
included in the registration statement in reliance on the report of Arthur
Andersen LLP, independent auditors, given upon the authority of such firm as
experts in accounting and auditing.

WHERE YOU MAY FIND ADDITIONAL INFORMATION

We filed a registration statement on Form S-1 with the Commission for the
shares of common stock in this offering. This prospectus does not contain all of
the information in the registration statement and the exhibits and schedule that
were filed with the registration statement. For further information with respect
to ATG and our common stock, we refer you to the registration statement and the
exhibits and schedules that were filed with the registration statement.
Statements contained in this prospectus about the contents of any contract or
any other document that is filed as an exhibit to the registration statement are
not necessarily complete, and we refer you to the full text of the contract or
other document filed as an exhibit to the registration statement. A copy of the
registration statement and the exhibits and schedules that were filed with the
registration statement may be inspected without charge at the public reference
facilities maintained by the SEC at the SEC's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies of all or any part of the
registration statement may be obtained from
68
<PAGE> 72

the SEC upon payment of the prescribed fee. Information on the operations of the
Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The
SEC maintains a World Wide Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Securities and Exchange Commission. The address of the site is
http://www.sec.gov.

Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act of 1934, and,
in accordance with the requirements of the Securities Exchange Act of 1934, will
file periodic reports, proxy statements and other information with the
Securities and Exchange Commission. These periodic reports, proxy statements and
other information will be available for inspection and copying at the regional
offices, public reference facilities and Web site of the Securities and Exchange
Commission referred to above.

69
<PAGE> 73

ATG GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... F-3
Consolidated Statements of Operations for the period from
July 22, 1998 (inception) to December 31, 1998 and for the
year ended December 31, 1999.............................. F-5
Consolidated Statements of Stockholders' Equity for the
period from July 22, 1998 (inception) to December 31, 1998
and for the year ended December 31, 1999.................. F-6
Consolidated Statements of Cash Flows for the period from
July 22, 1998 (inception) to December 31, 1998 and for the
year ended December 31, 1999.............................. F-7
Notes to Consolidated Financial Statements.................. F-8

SHARED COMMUNICATIONS SERVICES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Public Accountants.................... F-22
Balance Sheets as of September 30, 1997 and 1998 and June
30, 1999 (unaudited)...................................... F-23
Statements of Income for the years ended September 30, 1997
and 1998 and the nine months ended June 30, 1998 and 1999
(unaudited)............................................... F-24
Statements of Shareholders' Equity for the years ended
September 30, 1997 and 1998 and the nine months ended June
30, 1999 (unaudited)...................................... F-25
Statements of Cash Flows for the years ended September 30,
1997 and 1998 and the nine months ended June 30, 1998 and
1999 (unaudited).......................................... F-26
Notes to Financial Statements............................... F-28
</TABLE>

F-1
<PAGE> 74

INDEPENDENT AUDITORS' REPORT

The Board of Directors
ATG Group, Inc.:

We have audited the accompanying consolidated balance sheets of ATG Group,
Inc. and subsidiary as of December 31, 1998 and 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the period from July 22, 1998 (inception) to December 31, 1998 and the year
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
ATG Group, Inc. and subsidiary as of December 31, 1998 and 1999, and the results
of their operations and their cash flows for the period from July 22, 1998
(inception) to December 31, 1998 and the year ended December 31, 1999, in
conformity with generally accepted accounting principles.

KPMG LLP

San Francisco, CA
March 24, 2000

F-2
<PAGE> 75

ATG GROUP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1999
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 24,894,139 $ 20,090,739
Accounts receivable, net of allowance of $0 and
$147,000............................................... -- 5,553,250
Unbilled revenue.......................................... -- 2,393,827
Income taxes receivable................................... -- 1,945,794
Prepaid expenses and other................................ 106,218 4,853,852
------------ -------------
Total current assets.............................. 25,000,357 34,837,462
Property, plant and equipment, net.......................... 389,055 80,073,047
Loan origination costs, net................................. -- 4,828,618
Intangible assets, net...................................... -- 69,245,400
Other assets................................................ -- 3,402,165
------------ -------------
Total assets...................................... $ 25,389,412 $ 192,386,692
============ =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 264,809 $ 8,937,045
Accrued liabilities and other............................. 502,053 14,741,324
Current portion of capital leases......................... -- 130,894
------------ -------------
Total current liabilities......................... 766,862 23,809,263
------------ -------------
Long term debt.............................................. -- 70,000,000
Capital leases.............................................. -- 203,538
Other long term liabilities................................. -- 540,548
Commitments and contingencies
Redeemable preferred stock.................................. -- --
Series A convertible preferred stock, $0.0001 par value;
1,350,000 shares authorized, issued and outstanding;
liquidation preference of $2,129,863 and $2,429,863....... 2,000,000 2,000,000
Stockholders' equity:
Convertible preferred stock:
Series B, $0.0001 par value; 67,500,000 shares
authorized; 16,838,750 and 67,500,000 shares issued
and outstanding; liquidation preference of
$25,165,012 and $104,787,789......................... 1,684 6,750
Series C, $0.0001 par value; 1,600,000 authorized;
1,503,880 shares issued and outstanding; liquidation
preference of $2,854,014............................. -- 150
Series D, $0.0001 par value; 39,428,471 shares
authorized; 3,942,866 issued and outstanding;
liquidation preference of $17,621,435................ -- 394
</TABLE>

F-3
<PAGE> 76
ATG GROUP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS -- (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1999
------------ -------------
<S> <C> <C>
Common stock, $0.0001 par value; 157,300,000 shares
authorized; 3,650,050 and 4,900,506 shares issued and
outstanding............................................ 365 490
Additional paid-in capital................................ 100,195,513 284,890,876
Series B; 50,516,100 shares subscribed but unissued....... (74,833,642) --
Series D; 35,485,605 shares subscribed but unissued....... -- (157,556,500)
Deferred compensation..................................... -- (586,700)
Accumulated deficit....................................... (2,741,370) (30,922,117)
------------ -------------
Total stockholders' equity........................ 22,622,550 95,833,343
------------ -------------
Total liabilities and stockholders' equity........ $ 25,389,412 $ 192,386,692
============ =============
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements
F-4
<PAGE> 77

ATG GROUP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
(JULY 22, 1998) YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
1998 1999
--------------------- ------------
<S> <C> <C>
Revenue..................................................... $ -- $ 23,358,169
Cost of services............................................ -- 16,196,568
----------- ------------
Gross profit.............................................. -- 7,161,601
Costs and expenses
Selling, general and administrative expenses.............. 2,498,682 22,571,067
Depreciation and amortization............................. 4,796 4,621,732
----------- ------------
Total costs and expenses.................................. 2,503,478 27,192,799
----------- ------------
Loss from operations........................................ (2,503,478) (20,031,198)
Interest expense............................................ -- (3,892,165)
Interest and other income................................... 111,478 800,825
----------- ------------
Loss before taxes........................................... (2,392,000) (23,122,538)
Provision for income taxes.................................. (800) (5,000)
----------- ------------
Net loss.................................................... (2,392,800) (23,127,538)
Dividends on preferred stock................................ 348,570 5,053,209
----------- ------------
Net loss attributed to common stockholders.................. $(2,741,370) $(28,180,747)
=========== ============
Basic and diluted net loss per share........................ $ (0.75) $ (7.06)
=========== ============
Shares used to compute basic and diluted net loss per
share..................................................... 3,650,000 3,989,165
=========== ============
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements
F-5
<PAGE> 78

ATG GROUP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK CO
-------------------------------------------------------------------------------------------
SERIES B SERIES C SERIES D SUBSCRIPTION RECEIVABLE
------------------- ------------------ ------------------ ---------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------ --------- ------ --------- ------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock to
founders....................... -- $ -- -- $ -- -- $ -- -- $ --
Subscription of Series B
convertible preferred stock.... -- -- (67,354,850) (99,778,263)
Issuance of Series B convertible
preferred stock, net of
issuance costs of $164,288..... 16,838,750 1,684 16,838,750 24,944,621
Dividends on preferred stock....
Net loss........................
---------- ------ --------- ---- --------- ---- ----------- -------------
Balances at December 31, 1998... 16,838,750 1,684 -- -- -- (50,516,100) (74,833,642)
Additional subscription of
Series B convertible preferred
stock.......................... (145,150) (215,022)
Issuance of Series B convertible
preferred stock................ 23,661,292 2,366 23,661,292 35,051,412
Issuance of Series C convertible
preferred stock................ 1,503,880 150
Subscription of Series D
convertible preferred stock.... (39,428,471) (175,062,411)
Issuance of Series B convertible
preferred stock................ 26,999,958 2,700 26,999,958 39,997,252
Issuance of Series D convertible
preferred stock................ 3,942,866 394 3,942,866 17,505,911
Issuance costs of Series B, C
and D preferred stock..........
Issuance of common stock for
purchase of NewComm
Net, Inc. .....................
Deferred stock compensation
related to the grant of stock
options........................
Dividends on preferred stock....
Net loss........................
---------- ------ --------- ---- --------- ---- ----------- -------------
Balances at December 31, 1999... 67,500,000 $6,750 1,503,880 $150 3,942,866 $394 (35,485,605) $(157,556,500)
========== ====== ========= ==== ========= ==== =========== =============

<CAPTION>
CONVERTIBLE PREFERRED STOCK
-----------------------
COMMON STOCK TOTAL
-- ------------------ PAID-IN DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT EQUITY
-- --------- ------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock to
founders....................... 3,650,050 $365 $ 232,968 $ -- $ -- $ 233,333
Subscription of Series B
convertible preferred stock.... 99,778,263 --
Issuance of Series B convertible
preferred stock, net of
issuance costs of $164,288..... (164,288) 24,782,017
Dividends on preferred stock.... 348,570 (348,570) --
Net loss........................ -- -- (2,392,800) (2,392,800)
--------- ---- ------------ --------- ------------ ------------
Balances at December 31, 1998... 3,650,050 365 100,195,513 -- (2,741,370) 22,622,550
Additional subscription of
Series B convertible preferred
stock.......................... 215,022 --
Issuance of Series B convertible
preferred stock................ -- 35,053,778
Issuance of Series C convertible
preferred stock................ 2,784,814 2,784,964
Subscription of Series D
convertible preferred stock.... 175,062,411 --
Issuance of Series B convertible
preferred stock................ -- 39,999,952
Issuance of Series D convertible
preferred stock................ -- 17,506,305
Issuance costs of Series B, C
and D preferred stock.......... (488,031) (488,031)
Issuance of common stock for
purchase of NewComm
Net, Inc. ..................... 1,250,456 125 1,481,238 1,481,363
Deferred stock compensation
related to the grant of stock
options........................ 586,700 (586,700) --
Dividends on preferred stock.... 5,053,209 (5,053,209) --
Net loss........................ (23,127,538) (23,127,538)
--------- ---- ------------ --------- ------------ ------------
Balances at December 31, 1999... 4,900,506 $490 $284,890,876 $(586,700) $(30,922,117) $ 95,833,343
========= ==== ============ ========= ============ ============
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements

F-6
<PAGE> 79

ATG GROUP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
(JULY 22, 1998) YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
1998 1999
--------------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net Loss................................................. $(2,392,800) $ (23,127,538)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization......................... 4,796 4,621,732
Amortization of deferred financing costs.............. -- 286,145
Changes in operating assets and liabilities:
Accounts receivable................................. (106,218) (1,713,146)
Unbilled revenue.................................... -- 31,230
Prepaid expenses and other assets................... -- (4,739,614)
Accounts payable and other current liabilities...... 766,862 1,399,078
----------- -------------
Net cash used for operating activities........... (1,727,360) (23,242,113)
----------- -------------
Cash flows used in investing activities:
Purchase of property, plant and equipment................ (393,851) (72,826,996)
Change in accounts payable and other current liabilities
related to purchases of property, plant and
equipment............................................. -- 17,704,847
Acquisition and related costs of Shared Communications
Services, Inc......................................... -- (83,439,468)
Acquisition and related costs of NewComm Net, Inc........ -- 134,278
Investment in Shared Aircraft, LLC....................... -- (3,025,000)
----------- -------------
Net cash used in investing activities............ (393,851) (141,452,339)
----------- -------------
Cash flows from financing activities:
Proceeds from sale of preferred stock.................... 26,782,017 94,856,968
Proceeds from the sale of common stock................... 233,333 --
Increase in long term payable for non-compete contract... -- 163,383
Payments for loan origination costs...................... -- (5,114,763)
Proceeds from long term debt............................. -- 70,000,000
Principal repayments on capital leases................... -- (14,536)
----------- -------------
Net cash provided by financing activities........ 27,015,350 159,891,052
----------- -------------
Net increase (decrease) in cash and cash
equivalents.................................... 24,894,139 (4,803,400)
Cash and cash equivalents, beginning of period... -- 24,894,139
----------- -------------
Cash and cash equivalents, end of period......... $24,894,139 $ 20,090,739
=========== =============
Cash paid for:
Interest and commitment fees on long term debt............. $ -- $ 2,763,656
Income taxes paid.......................................... $ 800 $ --
Noncash investing and financing activities:
Common stock issued for purchase of NewComm Net, Inc..... $ -- $ 1,481,363
Deferred stock-based compensation........................ $ -- $ 586,700
Accrued preferred stock dividends........................ $ 348,570 $ 5,053,208
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements
F-7
<PAGE> 80

ATG GROUP, INC. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JULY 22, 1998 (INCEPTION) TO DECEMBER 31, 1998
AND FOR THE YEAR ENDED DECEMBER 31, 1999

(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Description of Business

Advanced TelCom Group, Inc. was incorporated under the laws of the State of
Delaware on July 22, 1998. It is a wholly owned subsidiary of ATG Group, Inc.
("ATG"), incorporated on April 21, 1999 as part of a corporate reorganization to
serve as a holding company for Advanced TelCom Group, Inc.

ATG, through its subsidiary, is a facilities-based integrated
communications provider offering broadband data and voice telecommunications
services primarily to small and medium-sized businesses in third and fourth tier
markets, with populations of between 100,000 and 250,000, across the United
States. Services include high speed Internet and data service, local exchange
service and long distance service. ATG seeks to become the provider of choice in
each target market by offering one stop, bundled communications solutions to its
customers through local sales, customer service and technical support personnel.

Until July 1999, ATG was in the development stage, as defined by Statement
of Financial Accounting Standards ("SFAS") No. 7, Accounting and Reporting by
Development Stage Enterprises. ATG's principal activities included developing
its business plans; procuring governmental authorizations; raising capital;
hiring management and other key personnel; developing, acquiring and integrating
operations support and other back office systems; acquiring equipment and
facilities; and negotiating interconnection agreements with other
telecommunications companies.

(b) Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
ATG and its subsidiary Advanced TelCom Group, Inc. All significant intercompany
accounts and transactions have been eliminated in consolidation.

The preparation of consolidated 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 consolidated
financial statements and reported results of operations during the reporting
period. Actual results could differ from those estimates.

(d) Revenue Recognition

ATG recognizes revenue on telecommunications and enhanced communications
services in the period during which the service is provided. Revenue billed to
customers in advance of providing services is deferred and recognized when
earned. Accrued revenue not yet billed is recorded as unbilled revenue on the
balance sheet. ATG's right to compensation from other carriers for calls
terminated on its networks, and ATG's obligation to pay other carriers for calls
by its customers terminated on their networks, commonly referred to as
reciprocal compensation, are subject to a number of uncertainties. For that
reason, ATG does not accrue these revenues or expenses until settled with other
carriers. In certain cases, ATG collects installation charges from its customers
to offset the costs of initiating service. ATG recognizes these charges in the
period service begins. ATG recognizes resale revenue as the amounts billed to
its customers. ATG recognizes as costs of services the amounts it pays to
carriers of the resold services.

F-8
<PAGE> 81
ATG GROUP, INC. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(e) Cash and Cash Equivalents

ATG considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.

(f) Other Assets

Included in ATG's other assets is a 50% ownership interest of Shared
Aircraft, LLC, formed in December 1999. Shared Aircraft was organized to
acquire, maintain, operate and dispose of one or more aircraft. ATG is
responsible for a pro rata portion of fixed operating expenses based upon
ownership percentage and variable expense based on usage. The equity method of
accounting is used for the investment in Shared Aircraft. The method requires
ATG to record its pro rata share of profits and losses of Shared Aircraft in its
Statement of Operations in the period in which they occur. Shared Aircraft had
no operations for the year ended December 31, 1999.

Also included in other assets is restricted cash attributed to a
non-qualified pension plan. The plan assets are held in Shared Communication's
name and are carried at fair value totaling $377,165. Recorded in other
long-term liabilities is an equal amount payable to participating employees upon
termination of employment.

(g) Concentrations and Fair Value of Financial Instruments

Cash and equivalents are, for the most part, maintained with major
financial institutions in the United States. Deposits held with banks may exceed
the amount of insurance provided on such deposits. Generally these deposits may
be redeemed upon demand and therefore, bear minimal risk. ATG performs ongoing
credit evaluations of its customers and requires deposits as deemed necessary.

Carrying amounts of certain of ATG's financial instruments, including cash
and equivalents, accrued payroll, and other accrued liabilities, approximate
fair value because of their short maturities.

(h) Property, Plant and Equipment

Property, plant and equipment, including leasehold improvements, are stated
at cost, which includes direct costs, capitalized labor and capitalized
interest. Depreciation and amortization are provided using the straight-line
method over the estimated useful lives of the assets as follows:

<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Telecommunications networks................................ 10 - 25
Operating support system................................... 7
Furniture and office equipment............................. 5 - 7
Vehicles................................................... 7
Building................................................... 25
Leasehold improvements..................................... Term of lease
IRU contracts.............................................. Term of contract
</TABLE>

(i) Goodwill

Goodwill represents the excess purchase price over the fair value of net
assets acquired and is being amortized using the straight-line method over 15
years. Amortization expense related to goodwill for the year ended December 31,
1999 was $1,978,389.

F-9
<PAGE> 82
ATG GROUP, INC. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(j) Income Taxes

The asset and liability method of accounting is used for income taxes.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carry-forwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. A valuation allowance is recorded to reduce
deferred tax assets to an amount whose realization is more likely than not. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized as income in the period that includes the enactment.

(k) Accounting for Impairment of Long-Lived Assets and Intangibles

ATG reviews long-lived assets and intangibles for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value less cost to sell.

(l) Comprehensive Loss

During 1998, ATG adopted SFAS No. 130, Reporting Comprehensive Income,
which requires comprehensive income and its components to be presented in the
financial statements. During 1998 and 1999, ATG had no components of other
comprehensive loss and, accordingly, the comprehensive loss is the same as net
loss for the period presented.

(m) Internal Use Software

ATG accounts for the costs of internal use software pursuant to the
American Institute of Certified Public Accountants issued State of Position
(SOP) 98-1, Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use. In accordance with SOP 98-1, ATG expensed the costs related to
the evaluation of its financial and operating support system requirements. All
costs of developing the operating support system have been capitalized.

(n) Stock-Based Compensation

ATG accounts for its stock option plan in accordance with the provisions of
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. Accordingly, compensation expense is
recorded on the date of grant only if the current market price of the underlying
stock exceeds the exercise price. ATG has elected to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of Statement of
Financial Accounting Standards (SFAS) No. 123.

(o) Deferred Compensation

ATG recognizes deferred compensation for the difference between the
estimated fair market value of ATG's common stock, which is based on the
valuation of the most recent round of preferred stock sold to investors, and the
price of certain options granted. The deferred compensation charge is amortized
using the straight-line method over the vesting period.

F-10
<PAGE> 83
ATG GROUP, INC. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(p) Net Loss per Share

Basic net loss per share is computed using the weighted-average number of
outstanding shares of common stock. Diluted net loss per share is computed using
the weighted-average number of shares of common stock outstanding and, when
dilutive, potential common shares from options and warrants to purchase common
stock using the treasury stock method and from convertible securities using the
if-converted basis. All potential common shares have been excluded from the
computation of diluted net loss per share for all periods presented because the
effect would have been antidilutive. See Note 3 for disclosure of omitted
shares.

(q) Stock Split, Reorganization and Amended Certificate of Incorporation

All references in the consolidated financial statements and notes to the
consolidated financials statements to number of shares and per share amounts
have been restated to reflect the increased number of shares outstanding from
the stock split and reorganization transactions described in Note 3.

(r) Advertising Costs

Advertising costs are included in selling, general and administrative
expenses and charged to expense as incurred. For the year ended December 31,
1999, such costs were $1,018,631.

(s) Segment Information

In 1998, ATG adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." ATG is organized primarily on the basis of
strategic geographic operating segments that will provide integrated
communication products in each geographic region. ATG has three strategic
geographic operating segments that are supported by a corporate administration
segment (Note 10).

(t) Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards, SFAS, No. 133, Accounting for
Derivative Instruments and Hedging Activities, which was amended by SFAS No.
137, Accounting for Derivative Instruments and Hedging Activities -- Deferral of
the Effective Date of FASB Statement No. 133, an amendment of FASB Statement No.
133, and is effective on a prospective basis for interim periods and fiscal
years beginning January 1, 2001. This Statement establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging securities. We have not, in the
past, used in any material respect, financial instruments as hedges against
financial and currency risks or for trading. However, as we expand our
operations, we may begin to use various financial instruments, including
derivative financial instruments, in the ordinary course of business, for
purposes other than trading. These instruments could include letters of credit,
guarantees of debt and interest rate swap agreements. We do not intend to use
derivative financial instruments for speculative purposes. Interest rate swap
agreements would be used to reduce our exposure to risks associated with
interest rate fluctuations and, subject to limitations and conditions, are
required by our credit facility. By their nature, these instruments would
involve risk, including the risk of nonperformance by counter parties, and our
maximum potential loss may exceed the amount recognized in our balance sheet. We
would attempt to control our exposure to counter party credit risk through
monitoring procedures and by entering into multiple contracts. To the extent we
begin to enter into such transactions in the future, we will adopt the
Statement's disclosure requirements in the financial statements for the year
ending December 31, 2001.

F-11
<PAGE> 84
ATG GROUP, INC. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(2) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following as of December 31:

<TABLE>
<CAPTION>
1998 1999
-------- -----------
<S> <C> <C>
Telecommunications networks................................. $ -- $34,071,154
Operating support system.................................... -- 10,957,360
Land and buildings.......................................... -- 6,139,850
Leasehold improvements...................................... -- 2,617,043
Furniture and office equipment.............................. 31,141 2,554,226
Vehicles.................................................... -- 577,591
Construction in progress.................................... 362,710 25,803,749
-------- -----------
393,851 82,720,973
Accumulated depreciation.................................... (4,796) (2,647,926)
-------- -----------
$389,055 $80,073,047
======== ===========
</TABLE>

Depreciation expense for the period from inception (July 22, 1998) to
December 31, 1998 and the year ended December 31, 1999 was $4,796 and
$2,643,130. Depreciation on telecommunications equipment begins once the
equipment is placed in service. Construction in progress costs relate to
projects to acquire, install and make operational switch equipment and
operational support systems. Direct labor costs incurred in connection with the
installation and construction of certain equipment is capitalized until such
equipment becomes operational. Costs are then amortized over the life of the
related asset. Capitalized labor included in property, plant and equipment was
$2,726,210 at December 31, 1999. Approximately $802,000 of interest costs,
associated with borrowings used to finance the construction of long-term assets,
was capitalized at December 31, 1999. No labor or interest was capitalized at
December 31, 1998.

As of December 31, 1999, fixed assets included payments for Indefeasible
Rights of Use (IRU) of optical fibers, which is included in telecommunications
networks. As of December 31, 1999, the total commitment related to IRUs was
$10,475,152 of which $3,736,439 was paid as of December 31, 1999 and $6,738,713
is payable in installments upon future contractual milestones.

(3) STOCKHOLDERS' EQUITY

(a) Reorganization

In April, 1999, ATG was formed to serve as a holding company for the
securities of Advanced TelCom Group, Inc. ATG was authorized to issue
117,300,000 shares of common stock, 20,000,000 shares of non-voting common
stock, 1,350,000 shares of Series A redeemable convertible preferred stock,
67,500,000 shares of Series B redeemable convertible preferred stock, 20,000,000
shares of Series B non-voting preferred stock and 1,350,000 shares of redeemable
preferred stock, all with par values of $0.0001. Rights and preferences of all
stock issued are identical to those of Advanced TelCom Group, Inc. prior to the
reorganization.

As part of the reorganization, all common stockholders of Advanced TelCom
Group, Inc. exchanged their shares for five times the number of ATG common
stock. Additionally, all of the Series A and B convertible preferred
stockholders exchanged their shares for fifty times the number of ATG Series A
and B convertible preferred stock.

In July, 1999, ATG amended its Certificate of Incorporation in connection
with a debt financing to authorize the sale of 1,600,000 shares Series C
redeemable convertible preferred stock.

F-12
<PAGE> 85
ATG GROUP, INC. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

In December, 1999, ATG amended its Certificate of Incorporation in
connection with the Series D financing. The authorized shares of common stock
were increased from 117,300,000 to 157,300,000. Additionally, the redeemable
provisions of the Series A, B and C redeemable convertible preferred stock and
the nonvoting common stock were eliminated.

(b) Stock Options

During 1998, ATG adopted its 1998 Stock Option Plan under which the Board
of Directors may issue either nonqualified or incentive stock options to
employees, officers, directors, advisers or contractors of ATG. ATG reserved
8,055,600 shares of common stock for issuance under the Plan. In December 1999,
ATG reserved an additional 12,180,062 shares of common stock for issuance under
the Plan. The Plan expires 10 years from the date of adoption. Options are
granted at fair market value at the date of grant for incentive stock options or
no less than 85% of fair market value for nonqualified options. Options will
vest under the terms of the option agreements.

A summary of the status of ATG's options under the Plan, is as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
-----------------------
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
---------- ---------
<S> <C> <C>
Outstanding at beginning of year............................ -- --
Granted..................................................... 10,754,500 $1.184
Forfeited................................................... (356,250) $1.184
---------- ------
Outstanding at end of year.................................. 10,398,250 $1.184
========== ======
Options exercisable at end of year.......................... 964,438 $1.184
========== ======
Weighted-average fair value of options granted during the
year with exercise price equal to fair value at date of
grant..................................................... $0.249
Weighted-average fair value of options granted during the
year with exercise price less than fair value at date of
grant..................................................... $2.617
</TABLE>

As of December 31, 1999, the range of exercise prices and weighted-average
remaining contractual life of outstanding options were as follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------
WEIGHTED-
AVERAGE WEIGHTED-
REMAINING AVERAGE
NUMBER CONTRACTUAL EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE
------------------------ ----------- ------------ ---------
<S> <C> <C> <C>
$1.184........................................... 10,398,250 9.87 $1.184
</TABLE>

Had compensation cost for ATG's Option Plan been determined for options
granted in 1999 using the fair market value at the grant dates consistent with
the method of SFAS Statement No. 123, Accounting

F-13
<PAGE> 86
ATG GROUP, INC. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

for Stock-Based Compensation, net loss and basic and diluted net loss per share
would have been as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
Net loss attributed to common stockholders:
As reported............................................... $ 28,180,747
Pro forma................................................. $ 28,420,892
Basic and diluted net loss per share:
As reported............................................... $ (7.06)
Pro forma................................................. $ (7.12)
</TABLE>

The fair value of the options granted in 1999 was approximately $0.249 per
share. The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions:
risk free rate 6%; expected life -- 10 years; and expected volatility 0.00%.

(i) Series A Convertible Preferred Stock

ATG has 1,350,000 authorized and issued shares of Series A convertible
preferred stock (Series A preferred stock). The Series A preferred stock is
convertible, at the option of the holder or upon the written election of more
than 50% of the holders, into fully paid and non-assessable shares of common
stock and redeemable preferred stock (Note 4). The conversion rate is one share
of common stock for each share of Series A preferred stock and one share of
redeemable preferred stock for each share of Series A preferred stock plus
accrued dividends, subject to adjustments for stock dividends, stock splits, and
capital reorganizations and dilution. The Series A preferred stock automatically
converts upon the closing of an underwritten public offering of shares of ATG's
common stock prior to November 30, 2003, resulting in total proceeds of at least
$50,000,000 and with a minimum share price of at least $6.66. The holders of the
Series A preferred stock are entitled to vote on an "as if converted" basis.

The Series A preferred stock accumulates dividends at a rate of 15% per
annum compounded annually. In the event of a liquidation, dissolution or winding
up of ATG, the holders of Series A preferred stock will be paid an amount equal
to the original purchase price plus accumulated but unpaid dividends. Accrued
dividends were $129,863 and $429,863 as of December 31, 1998 and 1999.

(ii) Series B, C and D Convertible Preferred Stock

ATG has authorized 67,500,000, 1,600,000 and 39,428,471 shares of Series B,
C and D convertible preferred stock (preferred stock). The preferred stock is
convertible, at the option of the holder or upon the written election of more
than 50% of the holders, into fully paid and non-assessable shares of common
stock. The conversion rate is one-for-one, subject to adjustments for stock
dividends, stock splits, and capital reorganizations and dilution. The preferred
stock automatically converts upon the closing of an underwritten public offering
of shares of ATG's common stock prior to November 30, 2003, resulting in total
proceeds of at least $50,000,000 and with a minimum share price of at least
$6.66. The holders of the preferred stock are entitled to vote on an "as if
converted" basis.

The preferred stock accumulate dividends at a rate of 10% per annum
compounded annually. In the event of a liquidation, dissolution or winding up of
ATG, the holders of the preferred stock will be paid an amount equal to the
original purchase price plus accumulated but unpaid dividends.

Accrued dividends for Series B convertible preferred stock were $218,707
and $4,787,753 as of December 31, 1998 and 1999. Accrued dividends for Series C
convertible preferred stock were $69,052 as

F-14
<PAGE> 87
ATG GROUP, INC. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

of December 31, 1999. Accrued dividends for Series D convertible preferred stock
were $115,110 as of December 31, 1999.

Dividends accrued on the preferred stock will not be payable and will be
canceled in the event that such shares are converted into common stock upon the
voluntary or automatic conversions described above.

(4) REDEEMABLE PREFERRED STOCK

ATG has 1,350,000 shares of authorized redeemable preferred stock, none of
which have been issued as of December 31, 1998 and 1999. The redeemable
preferred stock is nonvoting and will only be issued upon conversion of shares
of Series A preferred stock. The redeemable preferred stock accumulates
dividends at an annual rate of 15% compounded annually.

In the event of a liquidation, dissolution or winding up of ATG, the
holders of redeemable preferred stock will be paid an amount equal to the
original purchase price that was paid for the Series A preferred stock converted
into redeemable preferred stock plus accumulated but unpaid dividends, including
accumulated and unpaid dividends on the Series A preferred stock converted into
redeemable preferred stock. In the event that ATG is prohibited under applicable
law from redeeming the shares of redeemable preferred stock at the liquidation
date, then beginning 30 days after such date, interest will accrue on the
outstanding redemption amount at a rate of 15% per annum compounded annually,
increasing to a maximum of 20% per annum compounded annually until such time of
redemption.

The redeemable preferred stock is redeemable (1) at the option of ATG, at
any time, (2) upon the election of a majority of the holders of the redeemable
preferred stock anytime after November 30, 2003, or (3) automatically upon an
underwritten public offering of shares of ATG's common stock prior to November
30, 2003, resulting in total proceeds of at least $50,000,000 and with a minimum
share price of at least $6.66. The redemption price is equal to the amount
determined pursuant to liquidation as described above.

(5) CREDIT AGREEMENT

On May 19, 1999, ATG entered into a credit agreement for an aggregate
amount of $100 million which included a term loan facility, a revolving credit
facility and a letter of credit facility. On July 30, 1999 the agreement was
amended and restated to a maximum aggregate amount to $160 million. Borrowings
are secured by substantially all the assets of ATG.

The agreement provides for a $70 million term loan commitment, all of which
was outstanding as of December 31, 1999. The aggregate amount of allowable term
loans outstanding is determined as the borrowing base, as defined, less all
outstanding letter of credit obligations less the principal amount of all
outstanding revolving credit loans. Amounts borrowed under the term loan
commitment are due and payable on or before June 30, 2008. Required quarterly
principal payments begin on September 30, 2003 and continue through June 30,
2008. Voluntary payments made prior to July 31, 2001 will be subject to a
prepayment penalty of 1% of the amount prepaid.

The agreement provides for a $90 million revolving credit loans commitment
to be used to finance capital expenditures, working capital and acquisitions.
None of the revolving credit facility was outstanding as of December 31, 1999.
The aggregate amount of allowable revolving credit loans outstanding is
determined as the borrowing base, as defined, less all outstanding letter of
credit obligations less the principal amount of all outstanding term loans. The
maximum aggregate amount of revolving credit loans is equal to the revolving
credit commitment less all outstanding letter of credit obligations. Amounts
borrowed under the revolving credit facility are due and payable on or before
June 30, 2007. If at any time amounts borrowed exceed defined limits, such
excess amounts become payable immediately. The revolving
F-15
<PAGE> 88
ATG GROUP, INC. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

credit commitment will be permanently reduced each quarter beginning on
September 30, 2003 through June 30, 2007.

The agreement provides for letters of credit in the minimum amount of
$100,000 not to exceed the lesser of $10 million and revolving credit commitment
to support obligations of ATG incurred in the ordinary course of business. No
letters of credit were outstanding as of December 31, 1999.

ATG will be required to pay a commission on the face amount of each letter
of credit, the rate to be determined by the margin in effect for LIBOR rate
loans on a per annum basis. Commissions are payable quarterly in arrears. ATG
will pay an issuance fee of 0.125% per annum on the face amount of each letter
of credit, payable quarterly in arrears.

At ATG's option, loans under the term loan facility will bear interest at
the base rate plus 3.75% or LIBOR plus 4.75%. At ATG's option, loans under the
revolving loan facility will bear interest at the base rate or LIBOR plus an
applicable margin. The applicable margin with respect to base rate loans will
initially be 4.25% and may be as low as 2.75% based upon the financial condition
of ATG. The applicable margin with respect to LIBOR loans will initially be
3.25% and may be as low as 1.75% based upon the financial condition of ATG. The
determination of the applicable margin for both base rate and LIBOR loans will
take into account, among other things, revenue and debt to earnings ratios of
ATG and its subsidiary on a consolidated basis.

ATG is charged a facility fee each calendar quarter on the average daily
unused portion of the revolving loan facility. The facility fee with respect to
the revolving loan facility is payable in arrears until June 30, 2007 or such
earlier time as the revolving loan facility commitment is terminated. This
facility fee shall be from 0.5% to 1.5% of the average daily unused portion of
the revolving loan facility based upon the amount of the used portion of the
revolving loan facility.

Pursuant to the terms of the credit agreement, ATG must obtain and maintain
interest rate protection on at least 50% of the outstanding principal balance
commencing on the date that ATG utilizes 50% of the maximum aggregate
commitment. Additionally, ATG is required to make mandatory prepayments for
certain asset sales, excess cash flow and the issuance of certain debt or equity
interests.

The credit agreement contains covenants that, among other things, restrict
or limit the ability of ATG from incurring indebtedness or liens, entering into
mergers or acquisitions, disposing of assets, making investments or loans,
paying dividends or distributions, issuing additional capital stock, entering
into transactions with affiliates, and amending or modifying the terms of any
subordinated debt. The credit agreement also requires ATG to maintain compliance
with certain financial covenants, which take into account, among other things,
revenue, earnings, access lines, capital expenditures and debt to equity ratios.

During 1999, ATG incurred $5,114,763 of loan origination, legal and direct
financing costs in connection with the credit agreement. These costs have been
capitalized and will be amortized over the 94 month term of the credit facility
using a method that approximates the interest rate method. As of December 31,
1999, $286,145 of this amount has been amortized and included with interest
expense.

(6) ACQUISITION OF SHARED COMMUNICATIONS SERVICES, INC.

On July 30, 1999, Advanced TelCom Group, Inc. acquired all the outstanding
common stock of Shared Communications Services, Inc. for approximately $83.4
million from the proceeds of the Term Loan Commitment described in Note 5 and
cash. Shared Communications, based in Salem, Oregon, was a leading competitive
reseller of integrated telecommunications services to mid-sized and smaller
businesses and residential customers in Oregon and Washington. Advanced TelCom
Group, Inc. accounted for the acquisition using the purchase method of
accounting and the excess of the purchase price over the fair value of the net
identifiable assets acquired being amortized on a straight-line basis over 15
years.

F-16
<PAGE> 89
ATG GROUP, INC. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

In conjunction with the acquisition, Advanced TelCom Group, Inc. entered
into a non-competition agreement with the former chief executive officer of
Shared Communications. The agreement prohibits the chief executive officer from
entering into competitive business activities for five years for which Advanced
TelCom Group, Inc. has agreed to pay a total of $600,000 in three annual
installments of $200,000, the first of which was made in August 1999.

In connection with the Shared acquisition, the net acquisition costs have
been allocated to the assets and liabilities assumed based upon fair values on
the date of acquisition, as follows:

<TABLE>
<S> <C>
Current assets (other than cash)............................ $ 8,191,780
Property, plant and equipment............................... 9,788,296
Other assets and goodwill associated with acquisition....... 69,715,999
Liabilities assumed......................................... (4,256,607)
-----------
Net cash paid.......................................... $83,439,468
===========
</TABLE>

The following summary prepared on an unaudited pro forma basis reflects the
condensed consolidated results of operations for the year ended December 31,
1999, assuming Shared had been acquired at the beginning of the periods
presented (in thousands, except per share data):

<TABLE>
<S> <C>
Revenue..................................................... $ 50,033
Net loss attributed to common shareholders.................. $(35,628)
Basic net loss per share.................................... $ (8.93)
Shares used in pro forma per share computation.............. 3,989
</TABLE>

Pro forma results are not necessarily indicative of what would have
occurred if the acquisition had been in effect for the period presented. In
addition, they are not intended to project future results and do not reflect the
synergies that might be achieved from combined operations.

(7) ACQUISITION OF NEWCOMM NET, INC.

On September 23, 1999 Advanced TelCom Group, Inc. acquired all the
outstanding common stock of NewComm Net, Inc. by issuing 1,250,458 shares of
ATG's common stock, valued at approximately $1,481,000 and cash of approximately
$567,000. Advanced TelCom Group, Inc. accounted for the acquisition using the
purchase method of accounting. Goodwill of $1,507,790 was recorded for the
excess of the purchase price over the fair value of the net identifiable assets
acquired and is being amortized on a straight-line basis over 15 years. Pro
forma operating results would not differ significantly from reported amounts.

F-17
<PAGE> 90
ATG GROUP, INC. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(8) COMMITMENTS

(a) Lease Commitments

ATG leases equipment and office space at various locations under
non-cancelable operating leases, which expire at various dates through 2014.
Future minimum lease payments as of December 31, 1999, are as follows.

<TABLE>
<S> <C>
Years ending December 31:
2000...................................................... $ 2,002,292
2001...................................................... 2,031,548
2002...................................................... 1,967,709
2003...................................................... 2,021,486
2004...................................................... 1,983,533
Thereafter................................................ 10,301,576
-----------
$20,308,144
===========
</TABLE>

Rent expense for the period from July 22, 1998 (inception) to December 31,
1998 and for the year ended December 31, 1999 was $40,707 and $915,368.

ATG leases certain equipment under capital leases. The leases expire at
various dates through June 2004. Future minimum lease payments at December 31,
1999 are as follows:

<TABLE>
<S> <C>
Years ending December 31:
2000...................................................... $175,090
2001...................................................... 111,097
2002...................................................... 83,996
2003...................................................... 11,593
2004...................................................... 4,462
--------
386,238
Less amounts representing interest.......................... 51,806
--------
Present value of net minimum lease payments................. $334,432
========
</TABLE>

(b) Purchase commitments

As of December 31, 1999, ATG has outstanding commitments aggregating
approximately $20 million relating to telecommunications equipment purchases
other than IRV contracts and obligations under other agreements with suppliers
and service providers.

Advanced TelCom Group, Inc. has purchase commitments under IRU contracts of
$6,738,713 as of December 31, 1999, which are expected to be paid in fiscal 2000
(see Note 2).

(d) Telecommunications Services Agreement

In March 1999, Advanced TelCom Group, Inc. entered into a
telecommunications services agreement with Qwest Communication to obtain
services and facilities that include optical fiber, switched voice

F-18
<PAGE> 91
ATG GROUP, INC. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

services and ATM services. In exchange for receiving favorable pricing, ATG
agreed to a minimum revenue commitment as follows:

<TABLE>
<CAPTION>
MINIMUM REVENUE
YEAR OF CONTRACT COMMITMENT
- ---------------- ---------------
<S> <C>
1 - 3 combined.............................................. $12,000,000
4........................................................... $10,000,000
5........................................................... $12,000,000
6........................................................... $14,000,000
7........................................................... $15,000,000
</TABLE>

If Advanced TelCom Group, Inc. fails to meet its minimum revenue
commitment, Qwest is entitled to a true-up payment for the shortfall. As
additional assurance of the commitment, the agreement also requires ATG to
deliver funds to an escrow account that will be used to offset any shortfall,
should it exist. ATG has paid $150,000 to the escrow account as of December 31,
1999 and must deliver another $150,000 and $200,000 in April 2000 and 2001.

(e) Legal Proceedings

ATG and its subsidiary are subject to legal proceedings, claims, and
litigation arising in the normal course of business. ATG's management does not
expect that the ultimate costs to resolve matters will have a material adverse
effect on ATG's consolidated financial position, results of operations, or cash
flows.

(9) 401(k) PLAN

During 1999, ATG adopted a plan to provide retirement benefits under the
provisions of Section 401(k) of the Internal Revenue Code for all employees.
Employees may elect to contribute up to 15% of their compensation on a pre-tax
basis, not to exceed the maximum amount allowed as determined by the Code. ATG
matches contributions up to 4% of employee compensations. One quarter of the
matching portion vests for each year of employment. ATG did not has make other
discretionary contributions to the plan in 1999. Matching contributions were
$280,848 for the year ended December 31, 1999.

(10) SEGMENT INFORMATION

The accounting policies of the segments are the same as those described in
the "Summary of Significant Accounting Policies." ATG's chief operating decision
maker is the chief executive officer (CEO). The CEO views earnings before
interest, taxes, depreciation and amortization ("EBITDA") as the primary measure
of profit and loss. EBITDA is a measure commonly used by analysts, investors and
other interested parties in the telecommunications industry. However, EBITDA is
not a measurement of financial performance under generally accepted accounting
principles and should not be considered an alternative to net loss as a
measurement of performance or to cash flow as a measure of liquidity. EBITDA is
not necessarily comparable with similarly titled measures for other companies.

F-19
<PAGE> 92
ATG GROUP, INC. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

ATG has three reportable segments consisting of operations in the Western
United States, corporate, administration, and all others consisting of all
operations is the Central and Eastern United States. The following represents
information about revenues and EBITDA, property, plant and equipment and capital
expenditures for the reportable segments as of and for the year ended December
31, 1999.

<TABLE>
<CAPTION>
SEGMENTS
-----------------------------------------
WESTERN ALL CONSOLIDATED
DIVISION CORPORATE OTHERS TOTALS
----------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Revenue.............................. $23,240,525 $ -- $ 117,644 $ 23,358,169
EBITDA............................... (4,236,463) (10,639,691) (533,312) (15,409,466)
Property, plant and equipment........ 59,370,576 14,736,462 8,613,935 82,720,973
Capital expenditures................. 49,525,183 14,705,321 8,596,492 72,826,996
</TABLE>

The following reconciles total segment EBITDA to consolidated net loss for
the year ended December 31, 1999:

<TABLE>
<S> <C>
Total EBITDA for reportable segments........................ $(15,409,466)
Depreciation and amortization............................... (4,621,732)
Interest expense............................................ (3,892,165)
Interest and other income................................... 800,825
Provision for income taxes.................................. (5,000)
------------
Net loss............................................... $(23,127,538)
============
</TABLE>

(11) INCOME TAXES

Income tax expense for the periods ended December 31, 1998 and 1999
consisted of:

<TABLE>
<CAPTION>
1998 1999
---- ------
<S> <C> <C>
Current
Federal................................................... $ -- $ --
State..................................................... 800 5,000
---- ------
Total current tax expense................................... 800 5,000
Deferred
Federal................................................... -- --
State..................................................... -- --
---- ------
Total deferred tax expense.................................. -- --
---- ------
Total tax expense................................. $800 $5,000
==== ======
</TABLE>

The December 31, 1998 and 1999 income tax expense differed from the amounts
computed by applying the U.S. federal income tax rate of 34% to pretax income as
a result of the following:

<TABLE>
<CAPTION>
1998 1999
--------- -----------
<S> <C> <C>
Federal tax at statutory rate...................... $(813,552) $(7,863,363)
State taxes, net of federal income tax benefit..... 800 5,000
Goodwill amortization.............................. -- 667,480
Permanent difference............................... -- 123,694
</TABLE>

F-20
<PAGE> 93
ATG GROUP, INC. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
1998 1999
--------- -----------
<S> <C> <C>
Change in valuation allowance...................... 813,552 7,072,189
Other.............................................. -- --
--------- -----------
Total tax expense........................ $ 800 $ 5,000
========= ===========
</TABLE>

As of December 31, 1998 and 1999, the types of temporary differences that
give rise to significant portions of ATG's deferred tax assets and liabilities
are set out below.

<TABLE>
<CAPTION>
1998 1999
--------- -----------
<S> <C> <C>
Deferred tax assets:
Accruals and reserves............................ $ -- $ 480,000
State income taxes............................... -- 2,000
Goodwill and other intangibles................... -- 100,000
Capitalized organization costs................... 75,000 66,000
Capitalized start up costs....................... 847,000 667,000
Net operating loss and credit carryforwards...... 24,000 9,648,000
Other............................................ -- --
--------- -----------
Gross deferred tax assets.......................... 946,000 10,963,000
Valuation allowance................................ (946,000) (9,925,000)
--------- -----------
Net deferred tax assets............................ -- 1,038,000
Deferred tax liabilities:
Plant and equipment.............................. -- (1,038,000)
--------- -----------
Net deferred tax assets.......................... $ -- $ --
========= ===========
</TABLE>

Management has established a valuation allowance for the portion of
deferred tax assets for which realization is uncertain. The change in the
valuation allowance for deferred tax assets as of December 31, 1999 was an
increase of $8,979,000. We believe sufficient uncertainty exists regarding our
ability to realize our deferred tax assets and, accordingly, a full valuation
allowance has been established against the net deferred tax assets.

As of December 31, 1999, ATG had approximately $23.9 million of net
operating loss carryforwards for both federal and state purposes available to
offset taxable income in future years. The federal net operating loss
carryforwards expire in 2018 and 2019 and the state net operating loss
carryforwards expire in various years based upon each states' tax laws. In
addition, ATG had approximately $133,000 in minimum tax carryforwards that can
be carried over indefinitely.

Federal and California tax laws impose substantial restrictions on the
utilization of net operating loss and credit carryforwards in the event of an
"ownership change" for tax purposes, as defined in Section 382 of the Internal
Revenue Code. ATG has not yet determined whether an ownership change occurred
due to significant stock transactions in each of the reporting years disclosed.
If an ownership change occurred, utilization of the net operating loss
carryforwards could be reduced significantly.

F-21
<PAGE> 94

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
Shared Communications Services, Inc.:

We have audited the accompanying balance sheets of Shared Communications
Services, Inc. (an Oregon corporation) as of September 30, 1997 and 1998, and
the related statements of income, shareholders' equity and cash flows for each
of the two years in the period ended September 30, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Shared Communications
Services, Inc. as of September 30, 1997 and 1998, and the results of its
operations and its cash flows for each of the two years in the period ended
September 30, 1998, in conformity with generally accepted accounting principles.

Arthur Andersen LLP
Portland, Oregon,
November 19, 1998

F-22
<PAGE> 95

SHARED COMMUNICATIONS SERVICES, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------- JUNE 30,
1997 1998 1999
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 1,155,790 $ 2,708,983 $ 1,710,059
Securities available-for-sale..................... 428,496 504,431 321,630
Accounts receivable, net.......................... 2,288,552 2,689,709 3,393,029
Unbilled revenue.................................. 1,952,490 2,178,802 2,503,871
Income taxes receivable........................... 308,000 -- 39,601
Prepaid expenses and other........................ 170,874 44,471 6,535
----------- ----------- -----------
Total current assets...................... 6,304,202 8,126,396 7,974,725
Property, plant and equipment, net................ 4,702,100 7,945,059 8,390,766
Intangible assets, net............................ 385,586 133,510 46,270
Deferred income taxes............................. 69,000 -- 69,000
Other assets...................................... -- -- 321,883
----------- ----------- -----------
Total assets.............................. $11,460,888 $16,204,965 $16,802,644
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 2,531,691 $ 3,236,575 $ 2,010,182
Accrued liabilities and other..................... 435,870 724,498 665,850
Dividends payable................................. 158,086 7,785 --
Current maturities on long-term debt.............. 253,513 338,709 338,709
Current maturities on long-term debt to related
parties........................................ 447,066 -- --
Current portion of capital leases................. 67,767 119,376 119,376
Income taxes payable.............................. -- 384,000 598,600
Deferred income taxes............................. 15,000 60,000 --
----------- ----------- -----------
Total current liabilities................. 3,908,993 4,870,943 3,732,717
----------- ----------- -----------
Long term debt...................................... 1,523,561 3,024,754 3,047,204
Capital leases...................................... 221,646 314,806 229,592
Deferred tax liability.............................. -- 136,000 79,000
Other long term liabilities......................... -- -- 321,883
Stockholders' equity:
Common stock, no par value, 200,000 shares
authorized, 155,691 issued and outstanding..... 1,006,186 1,274,424 1,911,090
Unrealized gain (loss) on marketable securities... 32,190 75,757 (10,726)
Retained earnings................................. 4,768,312 6,508,281 7,491,884
----------- ----------- -----------
Total stockholders' equity................ 5,806,688 7,858,462 9,392,248
----------- ----------- -----------
Total liabilities and stockholders'
equity.................................. $11,460,888 $16,204,965 $16,802,644
=========== =========== ===========
</TABLE>

The notes are an integral part of the financial statements.
F-23
<PAGE> 96

SHARED COMMUNICATIONS SERVICES, INC.

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
------------------------- -------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue......................................... $34,490,992 $42,050,517 $31,020,389 $35,683,297
Cost of services................................ 24,417,652 27,971,082 21,501,246 23,613,319
----------- ----------- ----------- -----------
Gross profit.................................. 10,073,340 14,079,435 9,519,143 12,069,978
Costs and expenses
Selling, general and administrative
expenses................................... 7,537,761 9,869,610 6,552,747 9,266,485
Depreciation and amortization................. 1,280,629 1,167,585 1,035,809 809,509
----------- ----------- ----------- -----------
Total costs and expenses...................... 8,818,390 11,037,195 7,588,556 10,075,994
----------- ----------- ----------- -----------
Income from operations........................ 1,254,950 3,042,240 1,930,587 1,993,984
Interest expense................................ (202,660) (280,688) (209,436) (149,598)
Interest and other income (expense)............. 228,228 552,202 453,423 (304,284)
----------- ----------- ----------- -----------
Income before income taxes.................... 1,280,518 3,313,754 2,174,574 1,540,102
Provisions for income taxes................... 688,089 1,566,000 951,334 556,499
----------- ----------- ----------- -----------
Net income.................................... $ 592,429 $ 1,747,754 $ 1,223,240 $ 983,603
=========== =========== =========== ===========
</TABLE>

The notes are an integral part of the financial statements
F-24
<PAGE> 97

SHARED COMMUNICATIONS SERVICES, INC.

STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER TOTAL
-------------------- COMPREHENSIVE RETAINED SHAREHOLDERS'
SHARES AMOUNT INCOME EARNINGS EQUITY
------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balances at September 30, 1996............. 155,656 775,553 8,029 4,388,405 5,171,987
Net income................................. 592,429 592,429
Change in unrealized gain on investments... -- -- 24,161 -- 24,161
----------
Comprehensive income....................... 616,590
Dividends paid to shareholders............. -- -- -- (212,522) (212,522)
Compensation expense related to granting
options below fair market value.......... -- 230,633 -- -- 230,633
------- ---------- -------- ---------- ----------
Balances at September 30, 1997............. 155,656 1,006,186 32,190 4,768,312 5,806,688
Net income................................. 1,747,754 1,747,754
Change in unrealized gain on investments... -- -- 43,567 -- 43,567
----------
Comprehensive income....................... 1,791,321
Exercise of options........................ 35 1 -- -- 1
Dividends paid to shareholders............. -- -- -- (7,785) (7,785)
Compensation expense related to granting
options below fair market value.......... -- 268,237 -- -- 268,237
------- ---------- -------- ---------- ----------
Balances at September 30, 1998............. 155,691 1,274,424 75,757 6,508,281 7,858,462
Net income (unaudited)..................... 983,603 983,603
Change in unrealized gain on investments
(unaudited).............................. -- -- (86,483) -- (86,483)
----------
Comprehensive income (unaudited)........... 897,120
Compensation expense related to granting
options below fair market value
(unaudited).............................. -- 636,666 -- -- 636,666
------- ---------- -------- ---------- ----------
Balances at June 30, 1999 (Unaudited)...... 155,691 $1,911,090 $(10,726) $7,491,884 $9,392,248
======= ========== ======== ========== ==========
</TABLE>

The notes are an integral part of the financial statements
F-25
<PAGE> 98

SHARED COMMUNICATIONS SERVICES, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
------------------------- -------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 592,429 $ 1,747,754 $ 1,223,240 $ 983,603
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization................ 1,280,629 1,167,585 1,035,809 809,509
Stock option compensation expense............ 230,633 268,237 197,737 636,666
(Gain) loss on sale of securities............ 2,673 (9,752) (8,912) (95,260)
(Gain) loss on sale of property.............. -- (336,375) (336,375) 169,363
Deferred income taxes........................ (386,605) 250,000 152,000 (186,000)
Changes in operating assets and liabilities:
Accounts receivable........................ (494,865) (401,157) (790,812) (703,321)
Unbilled revenue........................... (350,476) (226,312) 59,136 (325,069)
Income tax receivable...................... 223,212 308,000 294,334 (39,601)
Prepaid expenses and other assets.......... (167,824) (8,597) 145,277 37,936
Accounts payable........................... 266,856 704,884 717,170 (1,226,393)
Accrued liabilities........................ 3,501 288,628 (10,078) (58,648)
Dividends payable.......................... 158,086 -- 21,193 --
Income tax payable......................... -- 384,000 -- 214,600
----------- ----------- ----------- -----------
Net cash provided by operating
activities............................ 1,358,249 4,136,895 2,699,719 217,385
----------- ----------- ----------- -----------
Cash flows used in investing activities:
Purchase of property, plant and equipment....... (1,391,931) (4,344,705) (3,676,608) (1,337,339)
Purchase of securities.......................... (6,809) (126,159) (96,925) (87,266)
Proceeds from sale of property.................. -- 899,300 899,300 --
Proceeds from sale of securities................ 50,000 103,543 173,973 278,845
----------- ----------- ----------- -----------
Net cash used in investing activities... (1,348,740) (3,468,021) (2,700,260) (1,145,760)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Borrowing on construction loan.................. 1,000,000 1,853,000 1,830,019 283,746
Borrowing on long-term debt..................... (364,049) (713,677) (172,758) --
Payments on long-term debt...................... (58,396) -- -- (261,296)
Payments on noncompete obligations.............. -- -- (447,066) --
Payments to related parties..................... -- -- -- --
Borrowings on line of credit.................... -- -- -- --
Proceeds from exercise of stock options......... -- 1 -- --
Principal repayments on capital leases.......... (54,702) (96,919) -- (85,214)
Dividends paid.................................. (212,522) (158,086) (158,086) (7,785)
----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities............................ 310,331 884,319 1,052,109 (70,549)
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents........................... 319,840 1,553,193 1,051,568 (998,924)
Cash and cash equivalents, beginning of
period................................ 835,950 1,155,790 1,155,790 2,708,983
----------- ----------- ----------- -----------
Cash and cash equivalents, end of
period................................ $ 1,155,790 $ 2,708,983 $ 2,207,358 $ 1,710,059
=========== =========== =========== ===========
</TABLE>

The notes are an integral part of the financial statements.
F-26
<PAGE> 99
SHARED COMMUNICATIONS SERVICES, INC.

STATEMENTS OF CASH FLOWS -- (CONTINUED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
------------------------- -------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest..................................... $ 196,148 $ 274,314 $ 271,375 $ 239,678
Income taxes................................. 719,000 675,000 675,000 302,500
Noncash investing activities:
Change in unrealized gain on securities...... $ 24,161 $ 43,567 $ -- $ (86,483)
Noncash capital lease obligations............ 40,860 241,688 -- --
Transfer between prepaid and property........ -- 135,000 135,000 --
Noncash financing activities:
Borrowing for building....................... $ 384,244 $ -- $ -- $ 283,746
Dividends declared, not paid................. -- 7,785 -- --
</TABLE>

The notes are an integral part of the financial statements
F-27
<PAGE> 100

SHARED COMMUNICATIONS SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1998

(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

(a) Description of Business

Shared Communications Services, Inc. is a switched-based, interexchange
carrier incorporated in the state of Oregon. Shared Communications provides 1+
dialing, 800 services, T-1 and individual dedicated access lines, private lines
for voice and data, travel cards, international services, voice mail, cellular
services, local services via Centrex Plus and customized billing. In addition,
Shared Communications provides communications consulting, system management
services and internet access.

Shared Communications is regulated by the various states in which it does
business. In the majority of states, Shared Communications is allowed to
establish its own rates and is required to report its rates to the regulatory
agencies.

(b) Cash and Cash Equivalents

Shared Communications considers all highly liquid investments with a
maturity of three months or less at the date of purchase to be cash equivalents.

Shared Communications classifies its security investments as available for
sale based on Shared Communications' intent. Securities available-for-sale are
stated on the balance sheet at their fair market value. Shared Communications
uses the specific identification method for determining the cost to use in
computing realized gains and losses.

(d) Property, Plant and Equipment

Property, plant and equipment is stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives. Leasehold
improvements are capitalized and amortized using the straight-line method over
the shorter of the initial lease term or the estimated useful lives of the
assets. Upon sale or other disposition, the cost and the related accumulated
depreciation are removed from the accounts and a gain or loss, if any, is
reflected in the statement of operations. Maintenance and repairs are expensed
as incurred. The cost of additions and betterments of property, plant and
equipment are capitalized.

The following is a table of the useful lives of the property, plant and
equipment:

<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Building.................................................... 25
Cable and wiring............................................ 15
Equipment................................................... 5-7
Software.................................................... 5
Switch...................................................... 7
Switch software and improvements............................ 5-7
</TABLE>

(e) Intangibles

Intangibles consist of goodwill, noncompete agreements, customer lists and
other purchased contracts. Intangibles are stated at cost less accumulated
amortization computed using the straight-line method over

F-28
<PAGE> 101
SHARED COMMUNICATIONS SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

estimate lives of three to fifteen years. Goodwill represents the excess of
purchase price over fair value of the net assets purchased in a business
acquisition.

Intangibles are composed of the following as of September 30:

<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Goodwill.................................................... $ 228,849 $ 228,849
Noncompete agreements....................................... 613,058 613,058
Customer lists and contracts................................ 1,288,177 1,288,177
---------- ----------
2,130,084 2,130,084
Less accumulated amortization............................... 1,744,498 1,996,574
---------- ----------
$ 385,586 $ 133,510
========== ==========
</TABLE>

(f) Revenues and Expenses

Revenues and related expenses are recognized in the period services are
provided. The related accruals for revenues, expenses and unbilled revenues are
included on the balance sheets.

(g) Advertising Costs

All costs associated with advertising and promoting products and services
are expensed in the year incurred. Advertising and promotion expenses were
$137,741 in 1997 and $152,771 in 1998.

(h) Use of Estimates and Concentrations of Risk

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 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.

Shared Communications purchases telecommunication services for resale from
a limited number of vendors. Shared Communications provides telecommunications
services to customers located in several western states; the majority of its
customers reside within Oregon, Washington and Nevada.

(i) Comprehensive Income

During fiscal year 1999, Shared Communications adopted SFAS No. 130,
Reporting Comprehensive Income. Under SFAS 130 Shared Communications is required
to report comprehensive income, which includes Shared Communications' net
income, as well as changes in equity from other sources. In Shared
Communications' case, the other changes in equity included in comprehensive
income comprise unrealized gains and losses on other available-for-sale
investments. The adoption of SFAS 130 had no impact on Shared Communications'
net income, balance sheet, or shareholders' equity.

(j) Equity-Based Compensation

The Financial Accounting Standards Board issued SFAS 123 which defines a
fair value based method of accounting for an employee stock option or similar
equity instrument and encourages all entities to adopt that method of accounting
for all of their employee stock compensation plans. However, it also allows an
entity to continue to measure compensation cost for those plans using the method
of accounting prescribed in APB 25. The Company has elected to account for its
stock-based compensation plan under APB 25. Entities electing to remain with the
accounting in APB 25 must make pro forma disclosures of

F-29
<PAGE> 102
SHARED COMMUNICATIONS SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

net income and, if presented, earnings per share, as if the fair value based
method of accounting defined in the Statement had been applied. For the years
ended September 30, 1997 and 1998, the pro forma income effect of options
granted did not differ from reported net income.

(k) Fair Value of Financial Instruments

The carrying value of Shared Communications' marketable securities are
based on quoted market prices for these or similar instruments. The fair value
of long-term debt, including current portion, is estimated based on quoted
market prices for the same or similar issues or on the current rates offered to
Shared Communications for debt of the same maturities. As of September 30, 1997
and 1998, the fair value of Shared Communications' financial instruments
approximated their carrying amounts.

(l) Income Taxes

Shared Communications accounts for income taxes in accordance with SFAS No.
109, Accounting for Income Taxes. This pronouncement requires deferred tax
assets and liabilities to be valued using the enacted tax rates expected to be
in effect when the temporary differences are recovered or settled.

(m) Reclassifications

Reclassifications have been made to prior year amounts to conform to
current year presentation.

(n) Unaudited Interim Financial Data

The interim financial data as of June 30, 1999 and relating to the nine
months ended June 30, 1998 and 1999 are unaudited; however, in the opinion of
Shared Communications' management, the interim data includes all adjustments,
consisting of only normal recurring adjustments, necessary for a fair statement
of the results for the interim periods. The results for the nine months ended
June 30, 1998 and 1999 are not necessarily indicative of the results to be
expected for the full year or any other interim period.

(2) PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment consist of the following as of September 30:

<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Land...................................................... $ 240,470 $ 323,656
Buildings................................................. 1,053,118 2,906,352
Cable and wiring.......................................... 1,971,638 2,883,791
Software and equipment.................................... 1,970,910 2,699,101
Switch, software and improvements......................... 2,116,321 2,545,423
----------- -----------
7,352,457 11,358,323
Accumulated depreciation.................................. (2,650,357) (3,413,264)
----------- -----------
$ 4,702,100 $ 7,945,059
=========== ===========
</TABLE>

F-30
<PAGE> 103
SHARED COMMUNICATIONS SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(3) LONG-TERM DEBT

<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
FINANCIAL INSTITUTIONS
Notes payable to financial institution, interest at 7.04%,
principal and interest payable monthly until maturity on
December 15, 2002, secured by receivables and equipment... $ 500,000 $ 440,319
Notes payable to financial institution, interest at 7.09%,
principal and interest payable monthly until maturity on
May 15, 2002, secured by receivables and equipment........ 946,446 774,651
Notes payable to financial institution, interest at 9.43%,
principal and interest of $3,378 payable monthly, secured
by land and buildings..................................... 330,628 315,115
Notes payable to financial institution, interest at 7.75%,
principal and interest of $15,790 payable monthly, secured
by land and buildings..................................... -- 1,833,378
---------- ----------
1,777,074 3,363,463
Current portion........................................... 253,513 338,709
---------- ----------
Long-term portion......................................... $1,523,561 $3,024,754
========== ==========
RELATED PARTIES
Note payable to related parties, payable $3,578 monthly,
including 9.50% interest was due July 21, 2000, secured by
real property which was sold during October 1997 and note
was paid in full subsequent to September 30, 1997......... $ 339,910 $ --
Note payable to related parties, payable $15,719 monthly,
including interest at 8.00%, due April 1998, secured by
receivables and equipment................................. 107,156 --
---------- ----------
447,066 --
Current portion........................................... 447,066 --
---------- ----------
Long-term portion......................................... $ -- $ --
========== ==========
</TABLE>

Aggregate maturities of long-term debt are as follows:

<TABLE>
<S> <C>
Years Ending September 30:
1999...................................................... $ 338,709
2000...................................................... 367,527
2001...................................................... 398,800
2002...................................................... 353,022
2003...................................................... 114,064
Thereafter................................................ 1,791,341
----------
$3,363,463
==========
</TABLE>

F-31
<PAGE> 104
SHARED COMMUNICATIONS SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(4) CAPITAL LEASES:

Shared Communications has acquired certain assets with capital lease
financing. These assets are included in property and equipment, and were
$390,380 and $632,068 at September 30, 1997 and 1998, respectively. The related
accumulated depreciation at September 30, 1997 and 1998 was $54,168 and $72,368,
respectively. The leases are payable in monthly installments with interest.

<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Capitalized lease, secured by related equipment............. $289,413 $434,182
Less current portion........................................ 67,767 119,376
-------- --------
Awarded..................................................... $221,646 $314,806
======== ========
</TABLE>

Future minimum lease payments required by this lease are as follows:

<TABLE>
<S> <C>
Years Ending December 31:
1999...................................................... $164,065
2000...................................................... 164,065
2001...................................................... 114,615
2002...................................................... 71,727
2003...................................................... 15,054
--------
529,526
Less amounts representing interest.......................... 95,344
--------
Present value of net minimum lease payments................. $434,182
========
</TABLE>

(5) COMPREHENSIVE INCOME:

Shared Communications has adopted SFAS No. 130, Reporting Comprehensive
Income, during fiscal year 1999. SFAS No. 130 establishes new rules for the
reporting and display of comprehensive income and its components, however, it
had no impact on Shared Communications' net income or total shareholders'
equity.

The components of comprehensive income are as follows:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
------------------------ ----------------------
1997 1998 1998 1999
--------- ----------- ---------- --------
<S> <C> <C> <C> <C>
Net income................................... $592,429 $1,747,754 $1,223,240 $983,603
Other comprehensive income (loss):
Change in unrealized gain (loss) on
investments, net of tax (provision)
benefit of $17,000, $25,600, $(12,400),
$(48,560), respectively................. 27,118 40,894 (19,765) (77,571)
Reclassification for unrealized gains
(losses) previously included in net
income, net of tax (provision) benefit
of $(1,900), $1,700, $(6,100) and
$(5,600), respectively.................. (2,957) 2,673 (9,752) (8,912)
-------- ---------- ---------- --------
Net unrealized gain (loss)................. 24,161 43,567 (29,517) (86,483)
-------- ---------- ---------- --------
Total comprehensive income................. $616,590 $1,791,321 $1,193,723 $897,120
======== ========== ========== ========
</TABLE>

F-32
<PAGE> 105
SHARED COMMUNICATIONS SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(6) STOCK OPTION PROGRAM:

Under the terms of Shared Communications' nonqualified stock option plan
(the Plan), the board of directors has the authority to determine all matters
relating to options to be granted under the Plan, including the selection of
individuals to be granted options, number of options granted, the exercise price
and the term and vesting period, if any. Employees granted options must agree to
remain employed for at least one year from the grant date. All options granted
expire after ten years. Transactions under the Plan during fiscal 1997 and 1998
were as follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------
NUMBER EXERCISE
OF SHARES PRICE
--------- --------
<S> <C> <C>
Balance, September 30, 1996................................. 6,069 $86.75
Grants...................................................... 1,632 --
----- ------
Balance, September 30, 1997................................. 7,701 86.75
Grants...................................................... 1,746 --
Exercises................................................... (35) --
Forfeitures................................................. (61) --
----- ------
Balance, September 30, 1998................................. 9,351 $86.75
===== ======
</TABLE>

As of September 30, 1998, all of the options granted were vested, but only
35 options had been exercised. Shared Communications recognized $230,633 and
$268,197 of compensation expense relating to the stock options granted for the
years ended September 30, 1997 and 1998, respectively. The stock options were
granted at strike prices that were below the fair market value of the stock. The
options granted during the years ended September 30, 1997 and 1998, were
executive compensation.

(7) BENEFIT PLAN:

Effective on October 1, 1994, Shared Communications adopted a Section 125,
cafeteria plan. The plan is available to employees. Cafeteria plan participants
are permitted $300 per month after 90 days of service, to be allocated among
their benefit selections including possible 401(k) contributions. In addition,
the Plan provides for the employer to make matching contributions of two-thirds
of the employee 401(k) contributions up to 6% of an individual's compensation
after one year of service and 1,000 continuous hours. Contributions made by
Shared Communications to this plan were $157,010, $185,956 and $239,228, for the
years ended September 30, 1996, 1997 and 1998, respectively.

(8) COMMITMENTS:

(a) Operating Leases

Shared Communications leases certain telecommunications equipment, office
space, vehicles and equipment that expire in one to four years. Shared
Communications' future minimum payments are as follows:

<TABLE>
<CAPTION>
Years Ending September 30:
<S> <C>
1999...................................................... $375,809
2000...................................................... 199,889
2001...................................................... 113,055
2002...................................................... 16,683
--------
$705,436
========
</TABLE>

F-33
<PAGE> 106
SHARED COMMUNICATIONS SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Rental expense was $177,676 and $303,489, for the years ended September 30,
1997 and 1998, respectively.

Shared Communications has entered into lease agreements for portions of its
new building that expire in one to five years. Rental income was $7,121 and
$20,224 for the years ended September 30, 1997 and 1998, respectively. Rental
income is expected to be approximately $70,000 in each of the next five years
relating to lease agreements that had been entered into as of September 30,
1998.

(b) Contracts

Shared Communications entered into a contract with a long-distance provider
which extends through February 1999. The contract has a Carrier Transport
monthly net usage commitment of $175,000.

(9) INCOME TAXES:

The components of the provision for income taxes consist of the following:

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------
1997 1998
---------- -----------
<S> <C> <C>
Current:
Federal................................................. $ 834,000 $1,165,000
State and local......................................... 108,000 151,000
--------- ----------
942,000 1,316,000
--------- ----------
Deferred:
Federal................................................. (225,000) 221,000
State and local......................................... (28,911) 29,000
--------- ----------
(253,911) 250,000
--------- ----------
Total........................................... $ 688,089 $1,566,000
========= ==========
</TABLE>

In March 1997, Shared Communications submitted an application to the
Internal Revenue Service to change its method of accounting for unbilled
revenue. The method change was approved and is effective for the tax year ended
September 30, 1997. Shared Communications is allowed to report the increase in
taxable income related to the change over a four-year period.

The reconciliation of the statutory federal income tax rate to Shared
Communications' effective income tax rate is as follows:

<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
--------------
1997 1998
----- -----
<S> <C> <C>
34.0% 34.0%
State and local taxes, net of federal income tax effect..... 6.0 3.8
Nondeductible expenses, including amortization.............. 13.4 8.6
Other....................................................... 0.3 0.9
---- ----
53.7% 47.3%
==== ====
</TABLE>

F-34
<PAGE> 107
SHARED COMMUNICATIONS SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The components of the net deferred tax assets and liabilities consist of
the following:

<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
----------------------
1997 1998
--------- ---------
<S> <C> <C>
Deferred tax liabilities:
Current:
Change in accounting method for unbilled revenue and
related service costs................................ $ (68,000) $(154,000)
--------- ---------
Non-current:
Property, plant and equipment.......................... (90,000) (442,000)
Change in accounting method for unbilled revenue and
related service costs................................ (194,000) (154,000)
--------- ---------
(284,000) (596,000)
--------- ---------
Total deferred tax liabilities.................... $(352,000) $(750,000)
--------- ---------
Deferred tax assets:
Current:
Accounts receivable and accrued liabilities............ 53,000 94,000
--------- ---------
Non-current:
Stock options vested................................... 353,000 456,000
Other.................................................. -- 4,000
--------- ---------
353,000 460,000
--------- ---------
Total deferred tax assets......................... 406,000 554,000
--------- ---------
Net deferred tax assets (liabilities).................. $ 54,000 $(196,000)
========= =========
Current deferred tax liabilities............................ $ (15,000) $ (60,000)
Non-current deferred tax assets (liabilities)............... 69,000 (136,000)
--------- ---------
$ 54,000 $(196,000)
========= =========
</TABLE>

(10) EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS -- UNAUDITED

On July 30, 1999, Advanced TelCom Group, Inc. acquired all the outstanding
common stock of Shared Communications Services, Inc. for approximately $83.5
million total cash consideration.

F-35
<PAGE> 108

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

ATG GROUP, INC.
COMMON STOCK

[ADVANCED TELECOM GROUP, INC. LOGO]
------------

PROSPECTUS

, 2000

------------

SALOMON SMITH BARNEY
CREDIT SUISSE FIRST BOSTON
LEHMAN BROTHERS
FIRST UNION SECURITIES, INC.
J.P. MORGAN & CO.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 109

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by ATG Group, Inc. in connection
with the sale of common stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fee.

<TABLE>
<S> <C>
SEC registration fee........................................ 52,800
NASD filing fee............................................. 20,500
Nasdaq National Market listing fee.......................... *
Printing and engraving costs................................ *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky fees and expenses.................................. 10,000
Transfer Agent and Registrar fees........................... *
Miscellaneous expenses...................................... *
------
Total............................................. *
======
</TABLE>

- ---------------
* To be provided by amendment.

------------------------

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law permits a corporation
to include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.

Our Restated Certificate of Incorporation will provide for the
indemnification of directors to the fullest extent permissible under Delaware
law.

Our Bylaws will provide for the indemnification of officers, directors and
third parties acting on our behalf if such person acted in good faith and in a
manner reasonably believed to be in and not opposed to the best interest of ATG,
and, with respect to any criminal action or proceeding, the indemnified party
had no reason to believe his or her conduct was unlawful.

We have entered into indemnification agreements with our directors and
executive officers, in addition to indemnification provided for in our Bylaws,
and intend to enter into indemnification agreements with any new directors and
executive officers in the future.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

During the past three years, we have issued unregistered securities to a
limited number of persons as described below.

- From December 1999 through April 2000, we sold an aggregate of 39,428,471
shares of Series D Preferred Stock to private investors at a purchase
price of $4.44 per share for an aggregate purchase price of
$175,062,411.20.

- In connection with our acquisition of NewComm Net, Inc., in September
1999, we issued 1,250,456 shares of our common stock to certain
shareholders of NewComm Net, Inc. in exchange for their shares of NewComm
Net, Inc.

II-1
<PAGE> 110

- From August 1999 through December 1999, we sold an aggregate of 1,503,880
shares of Series C Preferred Stock for $1.852 per share to private
investors for an aggregate purchase price of $2,784,964.70.

- From November 1998 through December 1999, we sold 67,500,000 shares of
Series B Preferred Stock for $1.482 per share to private investors for an
aggregate purchase price of $100,000,035.00.

- In July 1998, we sold 1,350,000 shares of Series A Preferred Stock for
$1.482 per share to private investors for an aggregate purchase price of
$2,000,000.00.

- In July 1998, we sold 3,650,050 shares of our common stock to certain of
our officers for an aggregate purchase price of $233,600.

- In April 2000, we issued 171,900 shares of our common stock in our
acquisition of all of the outstanding shares of Olympia Networking
Services, Inc.

None of the foregoing transactions involved any underwriters, underwriting
discounts or commissions, or any public offering, and we believe that each
transaction was exempt from the registration requirements of the Securities Act
by virtue of Section 4(2) thereof, Regulation D promulgated thereunder or Rule
701 pursuant to compensatory benefit plans and contracts relating to
compensation as provided under such Rule 701. The recipients in such transaction
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof, and
appropriate legends were affixed to the share certificates and instruments
issued in such transactions. All recipients had adequate access, through their
relationships with us to information about us.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

INDEX TO EXHIBITS

II-2
<PAGE> 111

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.10* Carrier Service Agreement dated as of December 31, 1998 by
and between Qwest Communications Corporation and Shared
Communications Services, Inc.
10.11* Carrier Agreement dated as of March 14, 1998 by and between
BellSouth Long Distance, Inc. and Shared Communications
Services, Inc.
10.12* Service Agreement dated as of February 7, 2000 by and
between Verio and Advanced TelCom Group, Inc.
10.13* Master Service Agreement dated as of March 29, 1999 by and
between Illuminet, Inc. and Advanced TelCom Group, Inc.
10.14* General Supply Agreement dated July 28, 1999 by and between
Lucent Technologies Inc. and Advanced TelCom Group, Inc.
10.15* Clearinghouse Services Agreement dated as of May 1999 by and
between SCC Communications Corp. and Advanced TelCom Group,
Inc.
10.16* Software License Agreement dated as of July 26, 1999 by and
between Digital Counterpart, Inc. and Advanced TelCom Group,
Inc.
10.17* Lease dated as of April 26, 1999 by and between Stony Point
East and Advanced TelCom Group, Inc.
10.18* Software License and Services Agreement by and between
Oracle Corporation and Advanced TelCom Group, Inc.
10.19* Software License and Services Agreement dated as of March 5,
1999 by and between Kenan Systems Corporation and Advanced
TelCom Group, Inc.
10.20* General Agreement dated as of January 14, 2000 by and
between Quintessant Communications, Inc. and Advanced TelCom
Group, Inc.
10.21* Telecommunications Services Agreement dated as of March 11,
1999 by and between Qwest Communications Corporation and
Advanced TelCom Group, Inc.
10.22* IRU Agreement dated as of December 11, 1998 by and between
Qwest Communications Corporation and Advanced TelCom Group,
Inc.
10.23* Master Communications Services Agreement dated as of
September 1999 by and between City of Tacoma, Department of
Public Utilities, Light Division and Advanced TelCom Group,
Inc.
10.24* Fiber Lease Agreement dated as of November 19, 1999 by and
between Sierra Pacific Communications and Advanced TelCom
Group, Inc.
10.25* License Agreement dated as of September 8, 1999 by and
between the United States of America Department of Energy
and Advanced TelCom Group, Inc.
10.26* Fiber Optic Private Network Agreement dated as of October 1,
1999 by and between Metromedia Fiber Network Services, Inc.
and Advanced TelCom Group, Inc.
10.27* IRU Agreement dated as of December 11, 1998 by and between
Qwest Communications Corporation and Advanced TelCom Group,
Inc.
10.28* IRU Agreement dated as of August 4, 1999 by and between
Cable One, Inc. and Advanced TelCom Group, Inc.
10.29* IRU Agreement dated as of March 31, 1999 by and between
Pacific Fiber Link, Inc. and Advanced TelCom Group, Inc.
10.30* Network Service Agreement dated as of October 10, 1994 by
and between US West Communications, Inc. and Shared
Communications, Inc.
10.31* Letter Agreement dated as of November 29, 1999 by and
between Quintessant Communications, Inc. and Advanced TelCom
Group, Inc.
</TABLE>

II-3
<PAGE> 112

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
21.1 Subsidiaries of Registrant.
23.1 Consent of KPMG LLP.
23.2 Consent of Arthur Andersen LLP.
23.3* Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included
in Exhibit 5.1).
24.1 Power of Attorney (see pages II-5 and II-6).
27.1 Financial Data Schedule.
</TABLE>

- ---------------
* To be filed by amendment.

(b) FINANCIAL STATEMENT SCHEDULES

Schedules have not been provided because the information required to be set
forth therein is not applicable or is shown in the financial statements or notes
thereto.

ITEM 17. UNDERTAKINGS

ATG hereby undertakes to provide to the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.

Insofar as indemnification by ATG for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of ATG pursuant to the provisions referenced in Item 14 of this Registration
Statement or otherwise, ATG has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by ATG of expenses incurred or paid by a director, officer, or
controlling person of ATG in the successful defense of any action, suit or
proceeding) is asserted by a director, officer or controlling person in
connection with the securities being registered hereunder, ATG will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

ATG hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by ATG pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.

II-4
<PAGE> 113

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Santa Rosa, State of
California, on April 17, 2000.

ATG GROUP, INC.

By: /s/ CLIFFORD G. RUDOLPH
------------------------------------
Clifford G. Rudolph, Chairman of the
Board, Chief Executive Officer and
Secretary

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Clifford G. Rudolph and Thomas A.
Grina, and each of them acting individually, as his true and lawful
attorneys-in-fact and agents, each with full power of substitution, for him in
any and all capacities, to sign any and all amendments to this Registration
Statement (including post-effective amendments or any abbreviated registration
statement and any amendments thereto filed pursuant to Rule 462(b) increasing
the number of securities for which registration is sought), and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, with full power of each to act alone, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully for all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or his or their substitute or substitutes, may lawfully do or cause
to be done by virtue hereof. This Power of Attorney may be signed in several
counterparts.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>

/s/ CLIFFORD G. RUDOLPH Chairman of the Board, Chief April 17, 2000
- --------------------------------------------------- Executive Officer and Secretary
Clifford G. Rudolph (principal executive officer)

/s/ THOMAS A. GRINA Senior Vice President and Chief April 17, 2000
- --------------------------------------------------- Financial Officer (principal
Thomas A. Grina financial officer)

/s/ ERIC E. RUSSELL Vice President and Controller April 17, 2000
- --------------------------------------------------- (principal accounting officer)
Eric E. Russell

/s/ ROBERT BENBOW Director April 17, 2000
- ---------------------------------------------------
Robert Benbow

/s/ WILLIAM S. PRICE Director April 17, 2000
- ---------------------------------------------------
William S. Price
</TABLE>

II-5
<PAGE> 114

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JOHN G. PUENTE Director April 17, 2000
- ---------------------------------------------------
John G. Puente

/s/ JOHN WATKINS Director April 17, 2000
- ---------------------------------------------------
John Watkins

/s/ BLAIR P. WHITAKER Director April 17, 2000
- ---------------------------------------------------
Blair P. Whitaker
</TABLE>

II-6
<PAGE> 115

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Form of Amended and Restated Certificate of Incorporation of
the Registrant.
3.2* Form of Amended and Restated Bylaws of the Registrant.
4.1* Form of Registrant's Common Stock certificate.
4.2 Second Amended and Restated Registration Rights Agreement.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1* Form of Indemnification Agreement entered into by the
Registrant with each of its directors and executive
officers.
10.2* 1998 Stock Option Plan and forms of agreements thereunder.
10.3* 2000 Equity Incentive Plan and forms of agreements
thereunder.
10.4* 2000 Employee Stock Purchase Plan.
10.5 Employment Agreement with Clifford G. Rudolph, dated
November 24, 1999.
10.6 Employment Agreement with Robert T. Warstler, dated December
1, 1999.
10.7 Employment Agreement with Thomas A. Grina, dated December 1,
1999.
10.8 Employment Agreement with Curtis E. Wheeling, dated December
1, 1999.
10.9 Employment Agreement with Katharine S. Klein, dated December
1, 1999.
10.10* Carrier Service Agreement dated as of December 31, 1998 by
and between Qwest Communications Corporation and Shared
Communications Services, Inc.
10.11* Carrier Agreement dated as of March 14, 1998 by and between
BellSouth Long Distance, Inc. and Shared Communications
Services, Inc.
10.12* Service Agreement dated as of February 7, 2000 by and
between Verio and Advanced TelCom Group, Inc.
10.13* Master Service Agreement dated as of March 29, 1999 by and
between Illuminet, Inc. and Advanced TelCom Group, Inc.
10.14* General Supply Agreement dated July 28, 1999 by and between
Lucent Technologies Inc. and Advanced TelCom Group, Inc.
10.15* Clearinghouse Services Agreement dated as of May 1999 by and
between SCC Communications Corp. and Advanced TelCom Group,
Inc.
10.16* Software License Agreement dated as of July 26, 1999 by and
between Digital Counterpart, Inc. and Advanced TelCom Group,
Inc.
10.17* Lease dated as of April 26, 1999 by and between Stony Point
East and Advanced TelCom Group, Inc.
10.18* Software License and Services Agreement by and between
Oracle Corporation and Advanced TelCom Group, Inc.
10.19* Software License and Services Agreement dated as of March 5,
1999 by and between Kenan Systems Corporation and Advanced
TelCom Group, Inc.
10.20* General Agreement dated as of January 14, 2000 by and
between Quintessant Communications, Inc. and Advanced TelCom
Group, Inc.
10.21* Telecommunications Services Agreement dated as of March 11,
1999 by and between Qwest Communications Corporation and
Advanced TelCom Group, Inc.
10.22* IRU Agreement dated as of December 11, 1998 by and between
Qwest Communications Corporation and Advanced TelCom Group,
Inc.
</TABLE>
<PAGE> 116

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.23* Master Communications Services Agreement dated as of
September 1999 by and between City of Tacoma, Department of
Public Utilities, Light Division and Advanced TelCom Group,
Inc.
10.24* Fiber Lease Agreement dated as of November 19, 1999 by and
between Sierra Pacific Communications and Advanced TelCom
Group, Inc.
10.25* License Agreement dated as of September 8, 1999 by and
between the United States of America Department of Energy
and Advanced TelCom Group, Inc.
10.26* Fiber Optic Private Network Agreement dated as of October 1,
1999 by and between Metromedia Fiber Network Services, Inc.
and Advanced TelCom Group, Inc.
10.27* IRU Agreement dated as of December 11, 1998 by and between
Qwest Communications Corporation and Advanced TelCom Group,
Inc.
10.28* IRU Agreement dated as of August 4, 1999 by and between
Cable One, Inc. and Advanced TelCom Group, Inc.
10.29* IRU Agreement dated as of March 31, 1999 by and between
Pacific Fiber Link, Inc. and Advanced TelCom Group, Inc.
10.30* Network Service Agreement dated as of October 10, 1994 by
and between US West Communications, Inc. and Shared
Communications, Inc.
10.31* Letter Agreement dated as of November 29, 1999 by and
between Quintessant Communications, Inc. and Advanced TelCom
Group, Inc.
21.1 Subsidiaries of Registrant.
23.1 Consent of KPMG LLP.
23.2 Consent of Arthur Andersen LLP.
23.3* Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included
in Exhibit 5.1).
24.1 Power of Attorney (See pages II-5 and II-6).
27.1 Financial Data Schedule.
</TABLE>

- ---------------
* To be filed by amendment.

<PAGE> 1
EXHIBIT 4.2

SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT

This Second Amended and Restated Registration Rights Agreement (the
"Agreement") is made and entered into as of December 8, 1999 between ATG GROUP,
INC. a Delaware corporation (the "Company"), and those persons listed on
Schedule 1 hereto (such persons, together with Affiliates thereof that hold
Registrable Securities are referred to as the "Investors").

WHEREAS, those Investors holding Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock and the Founder Investors
(collectively, the "Prior Investors") entered into a Registration Rights
Agreement with the Company, dated July 30, 1999 (the "Prior Agreement");

WHEREAS, the Company is selling shares of its Series D Preferred Stock
to certain purchasers (the "Series D Purchasers");

WHEREAS, in order to induce the Series D Purchasers to purchase the
Series D Preferred Stock, the Investors and the Company have agreed to provide
for the registration rights set forth in this Agreement;

WHEREAS, the Company and the Investors desire to amend and restate the
Prior Agreement, as amended by the Amendment, to read in its entirety as set
forth in this Agreement.

NOW, THEREFORE, the parties to this Agreement hereby agree as follows:

Unless otherwise defined herein, capitalized terms so used herein and
not defined shall have the same meaning as provided in the Purchase Agreement.

1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:

"Commission" means the Securities and Exchange Commission.

"Commission Form S-3" has the meaning specified in Section 2(a)
of this Agreement.

"Common Stock" means the Common Stock, par value $.0001 per
share, of the Company, as constituted on the date hereof, any shares of the
Company's capital stock into which such Common Stock shall be changed, or any
shares of the Company's capital stock resulting from any reclassification of
such Common Stock or recapitalization of the Company.

"Conversion Stock" means the Common Stock issued or issuable
pursuant to the conversion of the Convertible Preferred Stock.

"Convertible Preferred Stock" means the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock.

<PAGE> 2

"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor statute thereto, and the rules and regulations of the
Commission promulgated from time to time thereunder, all as the same shall be in
effect at the time.

"Founder Investors" means Clifford G. Rudolph, Michael Black and
Curtis Wheeling and a "Founder Investor" means any one of them.

"Founder Stock" means the Common Stock held by the Founder
Investors and the Rudolph Family 1997 Trust dated 10/10/97.

"Incidental Registration" has the meaning specified in Section
2(b) of this Agreement.

"Indemnified Parties" has the meaning specified in Section 6(a)
of this Agreement.

"Indemnifying Party" has the meaning specified in Section 6(c) of
this Agreement.

"Investors" means the Investors referred to in the Preamble and
any other person holding Registrable Securities to whom these registration
rights have been assigned pursuant to Section 9(f) of this Agreement.

"Majority Investors" means at any time the holders of a majority
of the Conversion Stock.

"Person" shall mean an individual, partnership, corporation,
association, trust, joint venture, unincorporated organization and any
government, governmental department or agency or political subdivision thereof.

"Purchase Agreement" means the Securities Purchase Agreement of
even date herewith among the Company and each of the parties named therein as
"Investors."

"Redeemable Preferred Stock" means the Company's Redeemable
Preferred Stock, par value $.0001 per share.

"Registrable Securities" means the following (in each case as
adjusted for stock splits, recapitalizations and other similar events) (i) the
Conversion Stock; (ii) any Common Stock or other securities issued or issuable
with respect to the Conversion Stock pursuant to any stock split, stock
dividend, recapitalization, or similar event; (iii) securities (other than
Redeemable Preferred Stock) issued in replacement or exchange of any of the
securities issued in clauses (i) or (ii) above; and (iv) Founder Stock;
provided, however, that any and all shares described in clauses (i)-(iv) above
that are resold to the public pursuant to a registration statement or pursuant
to Rule 144(g) promulgated under the Securities Act shall cease to be
Registrable Securities upon such resale.

"Registration Expenses" means all expenses incident to the
Company's performance of or compliance with this Agreement, including, without
limitation, all registration, filing, listing and National Association of
Securities Dealers, Inc. ("NASD") fees, all fees and expenses of complying with
securities or blue sky laws, all word processing, duplicating and printing
expenses,

-2-
<PAGE> 3

all messenger and delivery expenses, any transfer taxes, the fees and expenses
of the Company's legal counsel and independent public accountants, including the
expenses of any special audits or "cold comfort" letters required by or incident
to such performance and compliance, the reasonable fees and disbursements of one
counsel for all of the Investors, and any fees and disbursements of underwriters
customarily paid by issuers or sellers of securities; provided, however, that
Registration Expenses shall not include underwriting discounts and commissions.

"Required Registration" has the meaning specified in Section 2(a)
of this Agreement.

"Securities Act" means the Securities Act of 1933, as amended, or
any successor statute thereto, and the rules and regulations of the Commission
promulgated from time to time thereunder, all as the same shall be in effect at
the time.

"Series A Preferred Stock" means the Company's Series A Preferred
Stock, par value $.0001 per share.

"Series B Preferred Stock" means the Company's Series B Preferred
Stock, par value $.0001 per share.

"Series C Preferred Stock" means the Company's Series C Preferred
Stock, par value $.0001 per share.

"Series D Preferred Stock" means the Company's Series D Preferred
Stock, par value $.0001 per share.

"Underwriter's Maximum Number" has the meaning specified in
Section 2(f) of this Agreement.

2. Registration.

(a) Requested Registration. At any time after the earlier of: (i)
Company's initial public offering of equity securities, or (ii) the second
anniversary of the date of this Agreement, upon written request by the Majority
Investors that the Company effect the registration under the Securities Act of
all or part of the Registrable Securities (a "Requested Registration"), the
Company shall use its diligent efforts to effect the registration under the
Securities Act of the Registrable Securities that the Company has been so
requested to register by such Majority Investors within ninety (90) days after
receipt of such request or within forty-five (45) days after receipt of such
request if the Company is qualified to file a registration statement on
Commission Form S-3 or any successor or similar short-form registration
statement (collectively, "Commission Form S-3"); provided, however, that (i) the
Company shall not be obligated to effect a Requested Registration on Commission
Form S-3 pursuant to this Section 2(a) unless the anticipated aggregate offering
price of the Registrable Securities to be sold pursuant thereto is at least
$5,000,000 in the aggregate and (ii) each Investor, acting alone, shall have the
right to request that the Company register all or any portion of such Investor's
Registrable Securities (subject to the $5,000,000 aggregate offering threshold
referenced above) if the Company is qualified to file a registration statement
on Commission Form S-3, whether or not the Majority Investors join in such
request, and thereupon the Company shall use its diligent efforts to effect such
registration in accordance with the provisions

-3-
<PAGE> 4

hereof. The Company must effect an unlimited number of registrations pursuant to
this Section 2(a) to the extent such registrations may be effected on Commission
Form S-3 (and meet the $5,000,000 aggregate offering threshold referenced
above); provided, however, that (i) the Company shall not be obligated to effect
more than three (3) Requested Registrations hereunder on Commission Form S-1 or
any other Commission Form other than Commission Form S-3; and (ii) the Company
shall not be obligated to keep effective at any one time more than three
registration statements on Commission Form S-3 with respect to Registrable
Securities requested to be registered in accordance with this Section 2(a), and
if the Company is requested to effect the registration of Registrable Securities
on Commission Form S-3 at a time when it is keeping three such registration
statements effective, it may delay effecting such Requested Registration until
it is no longer required in accordance with Section 3(a)(iii) to keep effective
one of the then effective registration statements on Commission Form S-3.
Subject to Section 2(f) and the next succeeding sentence of this section 2(a),
the Company may include in such Requested Registration other securities of the
Company for sale, for the Company's account or for the account of any other
person, if and to the extent that the managing underwriter determines that the
inclusion of such additional shares will not interfere with the orderly sale of
the Registrable Securities subject to such Requested Registration at a price
range approved in writing by the Majority Investors. Upon receipt of any such
written request by the Majority Investors that the Company effect a Requested
Registration, the Company will notify each other Investor of such request at
least thirty (30) days prior to the filing of such registration statement, and
upon the request of any such Investor given in writing within fifteen (15) days
after the receipt of such notice, subject to Section 2(f), the Company shall as
soon as practicable thereafter cause any of the Registrable Securities specified
by any such Investor to be included in such registration statement (and any
related qualification under blue sky laws or other compliance) to the extent
such registration is permissible under the Securities Act and subject to the
conditions of the Securities Act.).

(b) Incidental Registration. If the Company for itself or any of
its security holders shall at any time or times after the date hereof determine
or is requested in accordance with Section 2(a) to register under the Securities
Act any shares of its capital stock or other securities (other than (i) the
registration of an offer, sale or other disposition of securities solely to
employees of, or other persons providing services to, the Company, or any
subsidiary pursuant to an employee or similar benefit plan registered on Form
S-8 or a similar successor form or (ii) relating to a merger, acquisition or
other transaction of the type described in Rule 145 under the Securities Act or
a comparable or successor rule, registered on Form S-4 or similar or successor
forms), on each such occasion the Company will notify each Investor of such
determination or request at least thirty (30) days prior to the filing of such
registration statement, and upon the request of any Investor given in writing
within twenty (20) days after the receipt of such notice, subject to Section
2(f), the Company shall use its diligent efforts as soon as practicable
thereafter to cause any of the Registrable Securities specified by any such
Investor to be included in such registration statement to the extent such
registration is permissible under the Securities Act and subject to the
conditions of the Securities Act (an "Incidental Registration").

(c) Registration Statement Form. The Company shall, if permitted
by law, effect any applicable registration requested under Section 2 by the
filing of a registration statement on Commission Form S-3 and shall use its
diligent efforts to take any action necessary to maintain its eligibility to
utilize Commission Form S-3 to permit resales as requested by the Investors with

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<PAGE> 5

respect to "Transactions Involving Secondary Offerings" as described in General
Instruction 1.B.3 of Commission Form S-3.

(d) Expenses. The Company shall pay all Registration Expenses
incurred in connection with any Incidental Registration and any Requested
Registrations meeting the requirements set forth in this Section 2, including
the fees and disbursements of one firm of attorneys representing the Investors
participating in each Incidental Registration and each Requested Registration.

(e) Effective Registration Statement. A Requested Registration or
an Incidental Registration requested pursuant to Section 2(a) or Section 2(b),
respectively, shall not be deemed to have been effected unless the registration
statement filed with respect thereto in accordance with the Securities Act has
become effective with the Commission. Notwithstanding the foregoing, a
registration statement will not be deemed to have become effective if (i) after
it has become effective with the Commission, such registration is made subject
to any stop order, injunction, or other order or requirement of the Commission
or other governmental agency or any court proceeding for any reason other than a
misrepresentation or omission by any Investor, or (ii) the conditions to closing
specified in the purchase agreement or underwriting agreement entered into in
connection with such registration are not satisfied, other than solely by reason
of some act or omission by any Investor.

(f) Priority in Registration. If a Requested Registration or an
Incidental Registration is an underwritten offering, and the managing
underwriters shall give written advice to the Investors or the Company, as the
case may be, that, in their opinion, market conditions dictate that no more than
a specified maximum number of securities (the "Underwriter's Maximum Number")
could successfully be included in such registration, then the Company and the
Investors will be able to participate in such offering in the following order of
priority: (A) in the case of a Requested Registration, (i) first, there shall be
included in such registration that number of Registrable Securities issued upon
conversion of shares of Convertible Preferred Stock that the holders thereof
shall have requested to be included in such offering, either in a request by the
Majority Investors or in a notice given to the Company pursuant to the final
sentence of Section 2(a), pro rata in accordance with the relative number of
shares originally requested to be included in such registration statement by
such Investors, to the full extent of the Underwriter's Maximum Number; (ii)
second, the Company shall be entitled to include in such registration that
number of securities that it proposes to offer and sell for its own account to
the full extent of the remaining portion of the Underwriter's Maximum Number;
and (iii) third, to the extent not inconsistent with any registration rights
hereafter granted by the Company to holders of Company securities, the Founder
Investors shall be entitled to include in such registration that number of
shares of Registrable Securities that the Founder Investors shall have requested
to be included in such registration to the full extent of the remaining portion
of the Underwriter's Maximum Number; and (B) in the case of an Incidental
Registration (i) first, the Company shall be entitled to include in such
registration that number of securities that the Company proposes to offer and
sell for its own account in such registration and that does not exceed the
Underwriter's Maximum Number; (ii) second, the Company will be obligated and
required to include in such registration that number of shares of Registrable
Securities issued upon the conversion of shares of Convertible Preferred Stock
that the holders thereof shall have requested to be included in such offering,
pro rata in accordance with the relative number of shares originally requested
to be included in such registration statement by such Investors, to the full

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<PAGE> 6

extent of the remaining portion of the Underwriter's Maximum Number; and (iii)
third, to the extent not inconsistent with any registration rights hereafter
granted by the Company to holders of the Company's securities, the Company will
be obligated and required to include in such registration that number of shares
of Founder Stock requested to be included in such offering by the Founder
Investors along with other securities of the Company that shall have been
requested by other Persons having registration rights pursuant to one or more
other registration rights agreements with the Company. If the number of shares
of Registrable Securities requested to be included in an underwritten offering
exceeds the then remaining portion of the Underwriter's Maximum Number as
provided in clauses (A) and (B) of this Section 2(f), as the case may be, then
the Investors whose aggregate request so exceeds the then remaining portion of
the Underwriter's Maximum Number may include shares of Registrable Securities in
such underwritten offering pro rata in accordance with the relative number of
shares originally requested to be included in such offering by such Investors in
the writing delivered in accordance with Section 2(a) or Section 2(b), as the
case may be.

(g) Delay of Registration. Notwithstanding anything in this
Section 2 to the contrary, the Company shall have the right to delay any
registration of Registrable Securities requested pursuant to paragraph (a) of
this Section 2 for up to ninety (90) days if such registration would, in the
judgment of the Company's Board of Directors, be detrimental to the Company and
its stockholders for such registration statement to be filed on or before the
date filing would otherwise be required and it would be essential to defer such
filing.

(h) Limitations. Notwithstanding anything in this Agreement to
the contrary, the Company shall not be obligated to take any action to effect
registration, qualification or compliance with respect to its Registrable
Securities:

(i) in any particular jurisdiction in which the Company
would be required to execute a general consent to service of process unless the
Company is already subject to service in such jurisdiction and except as
required by the Securities Act;

(ii) that would require it to qualify generally to do
business in any jurisdiction in which it is not already so qualified;

(iii) that would subject it to general taxation in a
jurisdiction in which it is not already subject generally to taxation; or

(iv) during the period starting with the date sixty (60)
days prior to the Company's estimated date of filing of, and ending on the 180th
day immediately following the effective date of any registration statement
pertaining to securities of the Company, provided that the Company is actively
employing in good faith reasonable efforts to cause such registration statement
to become effective.

(i) Termination. The rights to Requested Registrations in
accordance with Section 2(a) and to participate in Incidental Registrations in
accordance with Section 2(b) shall terminate on the seventh anniversary of the
Company's first Qualified Public Offering (as such term

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<PAGE> 7

is defined in the Company's Third Amended and Restated Certificate of
Incorporation as in effect on the date hereof).

3. Registration Procedures.

(a) If and whenever the Company is required to use its diligent
efforts to effect the registration of any Registrable Securities under the
Securities Act as provided in Section 2, the Company, as expeditiously as
possible and subject to the terms and conditions of Section 2, will do the
following:

(i) prepare and file with the Commission the requisite
registration statement to effect such registration and use its diligent efforts
to cause such registration to become and remain effective for the period set
forth in Section 3(a)(iii) below;

(ii) permit any Investor who, in the reasonable judgment
of the Company's counsel, might be deemed to be an underwriter or a controlling
person of the Company, to participate in the preparation of such registration
statement;

(iii) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such registration statement
until the earlier of such time as all of such securities have been disposed of
in accordance with the intended methods of disposition by the seller or sellers
thereof set forth in such registration statement or the expiration of 180 days
after such registration statement becomes effective (such period of 180 days to
be extended one day for each day during such period that such registration
statement shall be subject to any stop order suspending the effectiveness of the
registration statement, or of any order suspending or preventing the use of any
related prospectus or suspending the qualification of any Registrable Securities
included in such registration statement for sale in any jurisdiction);

(iv) furnish to the Investors such number of conformed
copies of such registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies of the
prospectus contained in such registration statement (including each preliminary
prospectus and any summary prospectus) and any other prospectus filed under Rule
424 under the Securities Act, in conformity with the requirements of the
Securities Act, and such other documents, as the purchaser or any Investor of
Registrable Securities to be sold under such registration statement may
reasonably request;

(v) use its diligent efforts to register or qualify all
Registrable Securities covered by such registration statement under such other
United States state securities or blue sky laws of such jurisdictions as any
Investor of Registrable Securities to be sold under such registration statement
shall reasonably request, to keep such registration or qualification in effect
for the time period set forth in Section 3(a)(iii) hereof, and take any other
action that may be reasonably necessary or advisable to enable the Investor who
holds Registrable Securities to be sold under such registration statement to
consummate the disposition thereof in such jurisdictions;

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<PAGE> 8

(vi) use its diligent efforts to cause all Registrable
Securities covered by such registration statement to be registered with or
approved by such other United States state governmental agencies or authorities
as may be necessary to enable the Investor of Registrable Securities to be sold
under such registration statement to consummate the intended disposition of such
Registrable Securities;

(vii) in the event of the issuance of any stop order
suspending the effectiveness of the registration statement, or of any order
suspending or preventing the use of any related prospectus or suspending the
qualification of any Registrable Securities included in such registration
statement for sale in any jurisdiction, the Company shall use its diligent
efforts promptly to obtain the withdrawal of such order;

(viii) use its diligent efforts to furnish to the
Investors of Registrable Securities to be sold under such registration statement
(1) an opinion, dated the effective date of the registration statement, of the
independent counsel representing the Company for the purposes of such
registration, addressed to the underwriters, if any, and to the Investors making
such request, stating that such registration statement has become effective
under the Securities Act and that (i) to the knowledge of such counsel, no stop
order suspending the effectiveness thereof has been issued and no proceedings
for that purpose have been instituted or are pending or contemplated under the
Securities Act; (ii) the registration statement, the related prospectus, and
each amendment or supplement thereto, comply as to form in all material respects
with the requirements of the Securities Act and the applicable rules and
regulations of the Commission thereunder (except that such counsel need express
no opinion as to financial statements and related schedules contained therein);
(iii) to the knowledge of such counsel, as of the effective date, neither the
registration statement, the prospectus, nor any amendment or supplement thereto
(other than the financial statements and related schedules therein), contains
any untrue statement of a material fact or omits a material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading; (iv) the descriptions in the registration statement or the
prospectus, or any amendment or supplement thereto, of the securities to be
registered, insofar as such description purports to constitute a summary of the
terms of the securities to be registered, and the description of the
underwriting, insofar as such description purports to describe the provisions of
the laws and documents, which have been provided to counsel, directly pertaining
to the underwriting are accurate and fairly present the information required to
be shown; and (v) such counsel does not know of any pending legal or
governmental proceedings to which the Company is a party or of which any
property of the Company is the subject which, if determined adversely to the
Company, would individually or in the aggregate have a material adverse effect
on the then-current or future consolidated financial position, stockholders'
equity or results of operation of the Company, nor of any contracts or documents
or instruments of a character required to be described in the registration
statement or prospectus, or any amendment or supplement thereto or to be filed
as exhibits to the registration statement that are not described and filed as
required (such opinion of counsel shall additionally cover such legal matters
with respect to the registration in respect of which such opinion is being given
as the Investors may reasonably request and may contain such qualifications and
limitations as are customarily included in opinions of such sort); and (2) a
letter, dated the effective date of the registration statement, from the
independent certified public accountants of the Company, addressed to the
underwriters, if any, and to the Investors making such request, stating that
they are independent certified public accountants within the meaning of the
Securities Act and that in the

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<PAGE> 9

opinion of such accountants, the financial statements and other financial data
of the Company included in the registration statement or the prospectus, or any
amendment or supplement thereto, comply as to form in all material respects with
the applicable accounting requirements of the Securities Act (such letter from
the independent certified public accountants shall additionally cover such other
financial matters (including information as to the period ending not more than
five business days prior to the date of such letter) with respect to the
registration in respect of which such letter is being given as the Investors may
reasonably request);

(ix) immediately notify the Investors of Registrable
Securities included in such registration statement at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of its
becoming aware of any event as result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances under which they were made, and at the request of the Investors
promptly prepare and furnish to the Investors a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such securities, such prospectus shall
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances under which they were made;

(x) otherwise use its diligent efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than eighteen
months, beginning with the first full calendar month after the effective date of
such registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;

(xi) provide a transfer agent for all Registrable
Securities covered by such registration statement not later than the effective
date of such registration statement; and

(xii) use its diligent efforts to list all Registrable
Securities covered by such registration statement on any securities exchange on
which any of the Registrable Securities are then listed.

(b) The Company may require each Investor of Registrable
Securities to be sold under such registration statement to furnish the Company
with such information and undertakings as it may reasonably request regarding
such Investor and the distribution of such securities as the Company may from
time to time reasonably request in writing.

(c) Each Investor, by execution of this Agreement, agrees (A)
that upon receipt of any notice from the Company, or upon such Investor's
otherwise becoming aware, of the happening of any event of the kind described in
subdivision (a)(ix) of this Section 3, such Investor will forthwith discontinue
its disposition of Registrable Securities pursuant to the registration statement
relating to such Registrable Securities until the receipt by such Investor of
the copies of the supplemented or amended prospectus contemplated by subdivision
(a)(ix) of this Section 3 and, if so

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<PAGE> 10

directed by the Company, will deliver to the Company all copies other than
permanent file copies, then in possession of the Investors of the prospectus
relating to such Registrable Securities current at the time of receipt of such
notice and (B) that it will immediately notify the Company, at any time when a
prospectus relating to the registration of such Registrable Securities is
required to be delivered under the Securities Act, of the happening of any event
as a result of which information previously furnished in writing by such
Investor to the Company specifically for inclusion in such prospectus contains
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made. In the
event the Company or any such Investor shall give any such notice, the period
referred to in subdivision (a)(iii) of this Section 3 shall be extended by a
number of days equal to the number of days during the period from and including
the giving of notice pursuant to subdivision (a)(ix) of this Section 3 to and
including the date when such Investor shall have received the copies of the
supplemented or amended prospectus contemplated by subdivision (a)(ix) of this
Section 3.

4. Underwritten Offerings.

(a) Underwritten Offering. In connection with any underwritten
offering pursuant to a registration requested under Section 2(a), the Company
will enter into an underwriting agreement with the underwriters for such
offering, such agreement to be in form and substance reasonably satisfactory to
the Majority Investors and such underwriters in their reasonable judgment and to
contain such representations and warranties by the Company and such other terms
as are customarily contained in agreements of that type, including, without
limitation, indemnities to the effect and to the extent provided in Section 6.
Each Investor participating in such underwritten registration shall be a party
to such underwriting agreement and may, at such Investor's option, require that
any or all of the representations and warranties by, and the other agreements on
the part of, the Company to and for the benefit of such underwriters shall also
be made to and for the benefit of each such Investor and that any or all of the
conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of such
Investor. No Investor participating in any such underwritten registration shall
be required by the provisions hereof to make any representations or warranties
to or agreements with the Company or the underwriters other than
representations, warranties or agreements regarding such Investor and its
intended method of distribution and any other representation required by law.

(b) Selection of Underwriters. If a Requested Registration
pursuant to Section 2(a) involves an underwritten offering, then the Company
shall select the underwriter from underwriting firms of national reputation,
subject to the reasonable approval of the Investors of a majority of the
Registrable Securities to be included in such registration.

(c) Holdback Agreements. Each Investor hereby agrees, if so
requested by the managing underwriter in each underwritten registration of the
Company's capital stock or other securities described in Section 2(a) and
Section 2(b) in a writing referencing this Section 4(c), not to effect (except
as part of such underwritten registration in accordance with the provisions
hereof) any sale, distribution, short sale, loan, grant of options for the
purchase of, or otherwise dispose of, any Registrable Securities for such period
as such underwriter requests, such period in no event to commence earlier than
seven (7) days prior to, or to end more than 180 days after, the effective date

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<PAGE> 11

of such registration. Each Investor further agrees that the Company may instruct
its transfer agent to place stop transfer notations in its records to enforce
the provisions of this Section 4(c).

5. Preparation, Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities Act,
the Company will give the Investors of Registrable Securities to be sold under
such registration statement, the underwriters, if any, and their respective
counsel and accountants, advance draft copies of such registration statement,
each prospectus included therein or filed with the Commission at least 5
business days prior to the filing thereof with the Commission, and any
amendments and supplements thereto promptly as they become available, and will
give each of them such access to its books and records and such opportunities to
discuss the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the opinion of such Investors and such underwriters' respective counsel, to
conduct a reasonable investigation within the meaning of the Securities Act.

6. Indemnification and Contribution.

(a) Indemnification by the Company. In the event of any
registration under the Securities Act pursuant to Section 2 of any Registrable
Securities covered by such registration, the Company will, and hereby does,
indemnify and hold harmless each Investor of Registrable Securities to be sold
under such registration statement, each such Investor's legal counsel, each
other person who participates as an underwriter in the offering or sale of such
securities (if so required by such underwriter as a condition to including the
Registrable Securities of the Investors in such registration) and each other
person, if any, who controls any such Investor or any such underwriter within
the meaning of the Securities Act (collectively, the "Indemnified Parties"),
against any losses, claims, damages or liabilities, joint or several, to which
the Investors or underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such securities were registered under the Securities Act, any
preliminary prospectus, final prospectus or summary prospectus contained therein
or any document incorporated therein by reference, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein in light of the circumstances in which they were made not misleading, or
arise out of any violation by the Company of any rule or regulation promulgated
under the Securities Act or state securities law applicable to the Company and
relating to action or inaction required of the Company in connection with any
such registration, and the Company will reimburse the Indemnified Parties for
any legal or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, liability, action or
proceeding; provided, however, that the Company shall not be liable to any
Indemnified Party in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of or is based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with information regarding the
Indemnified Party and furnished to the Company in writing by any Indemnified
Party specifically for use therein.

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<PAGE> 12

(b) Indemnification by the Investors. As a condition to including
any Registrable Securities of any holder thereof in any registration statement
filed pursuant to Section 2, such holder of Registrable Securities hereby agrees
to indemnify and hold harmless (in the same manner and to the same extent as set
forth in subdivision (a) of this Section 6) the Company, each director of the
Company, each officer of the Company and each other person, if any, who controls
the Company within the meaning of the Securities Act, with respect to any
statement or alleged statement in or omission or alleged omission from such
registration statement, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, if, and
only if, such statement or alleged statement or omission or alleged omission was
made in reliance upon and in conformity with information regarding the
Indemnified Party and furnished in writing to the Company directly by such
person or entity specifically for use therein; provided, however, that the
obligation of any Investor hereunder shall be limited to an amount equal to the
net proceeds received by such Investor upon the sale of Registrable Securities
sold in the offering covered by such registration, unless such liability arises
out of or is based upon such Investor's willful misconduct.

(c) Notices of Claims, etc. Promptly after receipt by an
Indemnified Party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this Section 6,
such Indemnified Party will, if a claim in respect thereof is to be made against
a party required to provide indemnification (an "Indemnifying Party"), give
written notice to the latter of the commencement of such action, provided,
however, that the failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligation under the
preceding subdivisions of this Section 6, except to the extent that the
Indemnifying Party is actually prejudiced by such failure to give notice. In
case any such action is brought against an Indemnified Party, unless in such
Indemnified Party's reasonable judgment a conflict of interest between such
Indemnified and indemnifying parties may exist in respect of such claim, the
Indemnifying Party shall be entitled to participate in and to assume the defense
thereof, jointly with any other Indemnifying Party similarly notified to the
extent that it may wish, with counsel reasonably satisfactory to such
Indemnified Party, and after notice from the Indemnifying Party to such
Indemnified Party of its election so to assume the defense thereof, the
Indemnifying Party shall not be liable to such Indemnified Party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. No Indemnifying
Party shall consent to entry of any judgment or enter into any settlement
without the consent of the Indemnified Party which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.

(d) Other Indemnification. Indemnification similar to that
specified in the preceding subdivisions of this Section 6 (with appropriate
modifications) shall be given by the Company and each holder of Registrable
Securities, respectively, included in any registration statement to each other
and any underwriter, as applicable, with respect to any required registration or
other qualification of securities under any Federal or state law or regulation
of any governmental authority, other than the Securities Act; provided, however,
that no Investor shall be obligated to indemnify any party to an extent or
regarding any matter not addressed in Section 6(b) hereof unless requested by
the underwriter in a public offering of the Company's Securities.

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<PAGE> 13

(e) Indemnification Payment. The indemnification required by this
Section 6 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.

(f) Survival of Obligations. The obligations of the Company and
of the Investors under this Section 6 shall survive the completion of any
offering of Registrable Securities under this Agreement.

(g) Contribution. If the indemnification provided for in this
Section 6 is unavailable or insufficient to hold harmless an Indemnified Party,
then each Indemnifying Party shall contribute to the amount paid or payable to
such Indemnified Party as a result of the losses, claims, damages or liabilities
referred to in this Section 6 an amount or additional amount, as the case may
be, in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party or parties, on the one hand, and the Indemnified Party, on
the other, in connection with the statements or omissions which resulted in such
losses, claims, demands or liabilities as well as any other relevant equitable
considerations; provided however, that the obligation of any Investor for
contribution pursuant to this Section shall be limited to an amount equal to the
net proceeds received by such Investor upon the sale of Registrable Securities
sold in the offering covered by such registration less any amount previously
contributed pursuant to this Section. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Indemnifying Party or parties, on the one
hand, or the Indemnified Party, on the other, and the parties' relative, intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid to an Indemnified Party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this Section 6(g) shall be deemed to include any legal or other
expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any action or claim which is the subject of this
Section 6. No person guilty of fraudulent misrepresentation within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.

7. Covenants Relating to Rule 144. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of securities of the Company to the public without
registration after such time as a public market exists for the Common Stock of
the Company, the Company agrees to do the following:

(a) to make and keep public information available in accordance
with Rule 144 under the Securities Act at all times after the effective date of
the first registration under the Securities Act filed by the Company for an
offering of its securities to the general public;

(b) to use its diligent efforts to then file with the Commission
in a timely manner all reports and other documents required of the Company under
the Securities Act and the Exchange Act, as amended (at any time after it has
become subject to such reporting requirements); and

(c) so long as an Investor owns any Registrable Securities, to
furnish to the Investor forthwith upon request a written statement by the
Company as to its compliance with the

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<PAGE> 14

reporting requirements of said Rule 144 (at any time after 90 days after the
effective date of the first registration statement filed by the Company for an
offering of its securities to the general public), and of the Securities Act and
the Exchange Act (at any time after it has become subject to such reporting
requirements) and a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company as an Investor may
reasonably request in availing itself of any rule or regulation of the
Commission allowing an Investor to sell any such securities without
registration.

8. Other Registration Rights. The Company represents and warrants that
it has not granted any registration rights to any Person other than established
by this Agreement. Except with the consent of the Majority Investors, the
Company shall not grant to any Person any registration rights more favorable
than or inconsistent with any of those contained herein, so long as any of the
registration rights under this Agreement remain in effect.

9. Miscellaneous.

(a) Specific Performance. The parties hereto acknowledge that
there may be no adequate remedy at law if any party fails to perform any of its
obligations hereunder and that each party may be irreparably harmed by any such
failure, and accordingly agree that each party, in addition to any other remedy
to which it may be entitled at law or in equity, shall be entitled to compel
specific performance of the obligations of any other party under this Agreement
in accordance with the terms and conditions of this Agreement.

(b) Notices. All demands, notices, requests, consents and other
communications required or permitted under this Agreement shall be in writing
and shall be personally delivered or sent by facsimile machine (with a
confirmation copy sent by one of the other methods authorized in this Section),
commercial (including FedEx) or U.S. Postal Service overnight delivery service,
or, deposited with the U.S. Postal Service mailed first class, registered or
certified mail, postage prepaid, as set forth below:

If to the Company or any Founder Investor, addressed to:

Mr. Clifford G. Rudolph
Chairman and Chief Executive Officer
100 Stony Point Road, Suite 130
Santa Rosa, California 95401
Facsimile: (707) 535-8909

with a copy to:

Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Daniel R. Mitz, Esq.
Telecopy: (650) 493-6811

-14-
<PAGE> 15

If to any Investor, at its address set forth on Schedule 1
hereto:

with a copy, if to a holder of Series A Preferred Stock,
Redeemable Preferred Stock, Series B Preferred Stock, to:

Edwards & Angell, LLP
101 Federal Street
Boston, Massachusetts 02110
Attn: Leonard Q. Slap, Esq.
Facsimile: (617) 439-4170

Notices shall be deemed given upon the earlier to occur of (i) receipt
by the party to whom such notice is directed; (ii) if sent by facsimile machine,
on the day (other than a Saturday, Sunday or legal holiday in the jurisdiction
to which such notice is directed) such notice is sent if sent (as evidenced by
the facsimile confirmed receipt) prior to 5:00 p.m. Eastern Time and, if sent
after 5:00 p.m. Eastern Time, on the day (other than a Saturday, Sunday or legal
holiday in the jurisdiction to which such notice is directed) after which such
notice is sent; (iii) on the first business day (other than a Saturday, Sunday
or legal holiday in the jurisdiction to which such notice is directed) following
the day the same is deposited with the commercial carrier if sent by commercial
overnight delivery service; or (iv) the fifth day (other than a Saturday, Sunday
or legal holiday in the jurisdiction to which such notice is directed) following
deposit thereof with the U.S. Postal Service as aforesaid. Each party, by notice
duly given in accordance therewith may specify a different address for the
giving of any notice hereunder.

(c) Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Delaware (without
giving effect to any conflicts or choice of laws provisions that would cause the
applications of the domestic substantive laws of any other jurisdiction).

(d) Headings. The descriptive headings of the several sections
and paragraphs of this Agreement are inserted for convenience only, and do not
constitute a part of this Agreement and shall not affect in any way the meaning
or interpretation of this Agreement.

(e) Entire Agreement; Amendments. This Agreement and the other
writings referred to herein or delivered pursuant hereto which form a part
hereof contain the entire understanding of the parties with respect to its
subject matter. This Agreement supersedes all prior agreements (including the
Prior Agreement) and understandings between the parties with respect to its
subject matter. This Agreement may be amended and the observance of any term of
this Agreement may be waived (either generally or in a particular instance and
either retroactively or prospectively) only by a written instrument duly
executed by the Company and the Majority Investors. Each holder of any
Registrable Securities at the time or thereafter outstanding shall be bound by
an amendment or waiver authorized by this Section 9(e), whether or not any such
Registrable Securities shall have been marked to indicate such consent.

(f) Assignability. This Agreement and all of the provisions
hereof will be assigned, without the consent of the Company, by any Investor to,
and shall inure to the benefit of,

-15-
<PAGE> 16

any permitted purchaser, transferee or assignee of more than 250,000 shares of
Registrable Securities (as adjusted for stock splits, recapitalizations, and
other similar events) unless the Investor specifies otherwise in connection with
particular transfers of Registrable Securities, and any such permitted
purchaser, transferee or assignee shall take shares of Registrable Securities
subject to, and shall be bound by, the terms of this Agreement; provided in each
instance that the transferee or assignee of such rights assumes in writing the
obligations of such Investor under this Agreement. However, the Company shall
not be required to recognize any such purchaser, transferee or assignee as a
Investor under this Agreement unless and until either (i) such person becomes
the holder of record of Registrable Securities, (ii) the Company receives
written notice of such purchase, transfer or assignment, or (iii) such purchase,
transfer or assignment is to an entity which is wholly-owned by such Investor or
is under common control (as determined in accordance with the Securities
Exchange Act of 1934, as amended) with such Investor and the Company has
provided written consent which shall not be unreasonably: (i) withheld, (ii)
conditioned or (iii) delayed.

(g) Counterparts. This Agreement may be executed in any number of
counterparts, and by the different parties hereto as separate counterparts, each
of which shall be an original, and all of which together shall constitute one
and the same instrument.

-16-
<PAGE> 17

IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.

COMPANY:

ATG GROUP, INC.

By: /s/ THOMAS A. GRINA
-----------------------------------------
Thomas A. Grina, Senior Vice President

INVESTORS:

ALTA COMMUNICATIONS VII, L.P.

BY: ALTA COMMUNICATIONS VII MANAGERS, LLC,
ITS GENERAL PARTNER

By: /s/ EILEEN McCARTHY
-----------------------------------------
Name: Eileen McCarthy
------------------------------------
Title: Member
-----------------------------------

ALTA VII ASSOCIATES LLC

BY: ALTA COMMUNICATIONS, INC., ITS MANAGER

By: /s/ EILEEN McCARTHY
-----------------------------------------
Name: Eileen McCarthy
------------------------------------
Title: VP - Finance
-----------------------------------

NORWEST VENTURE PARTNERS VI,
LP

BY: ITASCA VC PARTNERS VI, LLP, ITS GENERAL
PARTNER

By: /s/ JOHN P. WHALEY
-----------------------------------------
John P. Whaley, Partner

[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]

<PAGE> 18

NORWEST EQUITY PARTNERS VI,
LP

BY: ITASCA LBO PARTNERS VI, LLP, ITS GENERAL
PARTNER

By: /s/ JOHN P. WHALEY
-----------------------------------------
John P. Whaley, Partner

ONELIBERTY FUND IV, L.P.

BY: ONELIBERTY PARTNERS IV, LLC, ITS GENERAL
PARTNER

By: /s/ EDWIN M. KANIA, JR.
-----------------------------------------
Edwin M. Kania, Jr., Managing Member

ONELIBERTY ADVISORS FUND IV,
L.P.

BY: ONELIBERTY PARTNERS IV, L.L.C., ITS
GENERAL PARTNER

By: /s/ EDWIN M. KANIA, JR.
-----------------------------------------
Edwin M. Kania, Jr.,
Managing Member

[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]

<PAGE> 19

CENTENNIAL FUND V, L.P.

BY: CENTENNIAL HOLDINGS V, L.P.,
ITS GENERAL PARTNER

By: /s/ ADAM GOLDMAN
-----------------------------------------
Adam Goldman, General Partner

CENTENNIAL FUND VI, L.P.

BY: CENTENNIAL HOLDINGS VI, LLC,
ITS GENERAL PARTNER

By: /s/ ADAM GOLDMAN
-----------------------------------------
Adam Goldman, Managing Principal

CENTENNIAL ENTREPRENEURS FUND VI, L.P.

BY: CENTENNIAL HOLDINGS VI, LLC,
ITS GENERAL PARTNER

By: /s/ ADAM GOLDMAN
-----------------------------------------
Adam Goldman, Managing Principal

CENTENNIAL HOLDINGS I, LLC

By: /s/ ADAM GOLDMAN
-----------------------------------------
Adam Goldman, Senior Vice President

[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]

<PAGE> 20

BCI GROWTH V, L.P.

BY: GLENPOINTE ASSOCIATES V, LLC

By: General Partner

Name: /s/ STEPHEN J. ELEY
------------------------------------
Title: Managing Member
-----------------------------------
Stephen J. Eley

BCI INVESTORS, LLC

By: /s/ STEPHEN J. ELEY
----------------------------------------
Name: Stephen J. Eley
------------------------------------
Title: Managing Member
-----------------------------------

DUFF, ACKERMAN & GOODRICH L.P.

BY: DAG LLC

By: /s/ JOHN M. DUFF, JR.
-----------------------------------------
Name: John M. Duff, Jr.
------------------------------------
Title: Managing Director
-----------------------------------

UNIONBANCAL VENTURE
CORPORATION

By: /s/ KEVIN SAMPSON /s/ TERRI LANG
-----------------------------------------
Name: Kevin Sampson, Terri Lang
------------------------------------
Title: VP VP
-----------------------------------

/s/ BILL O'MEARA
--------------------------------------------
Bill O'Meara

[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]

<PAGE> 21

FIRST UNION CAPITAL PARTNERS

By: /s/ SCOTT PERPER
-----------------------------------------
Scott Perper, Managing Partner

JP MORGAN INVESTMENT
CORPORATION

By: /s/ JOHN WATKINS
-----------------------------------------
John Watkins, Managing Director

SIXTY WALL STREET SBIC FUND,
L.P.

By: /s/ JOHN WATKINS
-----------------------------------------
John Watkins, Vice President

AT&T VENTURE FUND II, LP

BY: VENTURE MANAGEMENT, LLC, ITS GENERAL
PARTNER

By: /s/ NEAL M. DOUGLAS
-----------------------------------------
Neal M. Douglas, Manager

[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]

<PAGE> 22

SPECIAL PARTNERS FUND, LP

BY: VENTURE MANAGEMENT III, LLC, ITS GENERAL
PARTNER

By: /s/ NEAL M. DOUGLAS
-----------------------------------------
Neal M. Douglas, Manager

SPECIAL PARTNERS FUND
INTERNATIONAL, LP

BY: VENTURE MANAGEMENT III, LLC, ITS
INVESTMENT GENERAL PARTNER

By: /s/ NEAL M. DOUGLAS
-----------------------------------------
Neal M. Douglas, Manager

WS INVESTMENT COMPANY 99B

By: /s/ DANIEL MITZ
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------

WS INVESTMENT COMPANY 98B

By: /s/ DANIEL MITZ
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------

[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]

<PAGE> 23

TPG PARTNERS II, L.P.
BY: TPG GENPAR II, L.P.
BY: TPG ADVISORS II, INC.

By: /s/ JEFFREY A. SHAW
-----------------------------------------
Title:
--------------------------------------

TPG PARALLEL II, L.P.
BY: TPG GENPAR II, L.P.
BY: TPG ADVISORS II, INC.

By: /s/ JEFFREY A. SHAW
-----------------------------------------
Title:
--------------------------------------

TPG INVESTORS II, L.P.
BY: TPG GENPAR II, L.P.
BY: TPG ADVISORS II, INC.

By: /s/ JEFFREY A. SHAW
-----------------------------------------
Title:
--------------------------------------

TPG 1999 EQUITY PARTNERS II, L.P.
BY: TPG ADVISORS II, INC.

By: /s/ JEFFREY A. SHAW
-----------------------------------------
Title:
--------------------------------------

[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]

<PAGE> 24

CORNERSTONE PROPERTIES I, LLC

By: /s/ JOHN JACQUES
-----------------------------------------
John Jacques, Member

GENERAL ELECTRIC CAPITAL CORPORATION

By: /s/ MICHAEL J. BANN
-----------------------------------------
Name: Michael J. Bann
------------------------------------
Title: Senior Vice President
-----------------------------------

NEWCOURT COMMERCIAL FINANCE CORPORATION

By: /s/ JOHN P. SIRICO, II
-----------------------------------------
Name: John P. Sirico, II
------------------------------------
Title: Vice President
-----------------------------------

/s/ STEVEN W. ROTH
--------------------------------------------
Steven W. Roth

/s/ LEONARD Q. SLAP
--------------------------------------------
Leonard Q. Slap

/s/ MICHAEL E. GIBSON
--------------------------------------------
Michael E. Gibson

/s/ KEVIN E. SOMERVILLE
--------------------------------------------
Kevin E. Somerville

[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]

<PAGE> 25

TELECOM PARTNERS II, L.P.

BY: TELECOM MANAGEMENT II, L.L.C., ITS
GENERAL PARTNER

By: /s/ STEPHEN W. SCHOVEE
-----------------------------------------
Stephen W. Schovee, Managing Member

/s/ G. JACKSON TANKERSLEY
--------------------------------------------
G. Jackson Tankersley, Jr., d/b/a The
Millennial Fund

THE RUDOLPH FAMILY 1997 TRUST
DATED 10/10/97

By: /s/ CLIFFORD G. RUDOLPH
-----------------------------------------
Clifford G. Rudolph, Trustee

/s/ MICHAEL BLACK
--------------------------------------------
Michael Black

/s/ CURTIS WHEELING
--------------------------------------------
Curtis Wheeling

/s/ CLIFFORD G. RUDOLPH
--------------------------------------------
Clifford G. Rudolph

EAGLE CREEK CAPITAL LLC

By: /s/ DAVID E. BOYLE
-----------------------------------------
David E. Boyle, Vice President

[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]

<PAGE> 26

/s/ MARTIN KORMAN
--------------------------------------------
Martin Korman

/s/ JOHN AGUIRRE
--------------------------------------------
John Aguirre

/s/ DANIEL MITZ
--------------------------------------------
Daniel Mitz

/s/ KURT HAMMERSTROM
--------------------------------------------
Kurt Hammerstrom

ANDREW J. HIRSCH & NINA M. BROOKS, TRUSTEES
OF HIRSCH/BROOKS FAMILY TRUST -
1999 U/I DTD. 10/08/99

By: /s/ ANDREW J. HIRSCH
-----------------------------------------
Andrew J. Hirsch, Trustee

[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]

<PAGE> 27

MILLENNIAL HOLDINGS, LLC

/s/ G. JACKSON TANKERSLEY
--------------------------------------------
G. Jackson Tankersley, Jr., Managing Member

[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]

<PAGE> 28

MUSHTARAK LIMITED

By: /s/ Abdul Wahab S. Albaptain
-----------------------------------------
Name: Abdul Wahab S. Albaptain
---------------------------------------
Title: Director
--------------------------------------

[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]

<PAGE> 1
EXHIBIT 10.5

ATG GROUP, INC.

CLIFFORD G. RUDOLPH EMPLOYMENT AGREEMENT

This Agreement is made by and between ATG Group, Inc. (the "Company"),
and Clifford G. Rudolph ("Executive") as of November 24th, 1999.

1. Duties and Scope of Employment.

(a) Positions and Duties. Executive will continue to serve as
Chairman and Chief Executive Officer of the Company. Executive will render such
business and professional services in the performance of his duties, consistent
with Executive's position within the Company, as shall reasonably be assigned to
him by the Company's Board of Directors (the "Board"). The period of Executive's
employment under this Agreement is referred to herein as the "Employment Term."

(b) Board Membership. Executive will continue to serve as a
member and Chairman of the Company's Board of Directors (the "Board"), subject
to any required Board and/or stockholder approval.

(c) Obligations. During the Employment Term, Executive will
devote his full business efforts and time to the Company. For the duration of
the Employment Term, Executive agrees not to actively engage in any other
employment, occupation or consulting activity for any direct or indirect
remuneration without the prior approval of the Board (which approval will not be
unreasonably withheld); provided, however, that Executive may, without the
approval of the Board, serve in any capacity with any civic, educational or
charitable organization, or as a member of corporate Boards of Directors (but in
all cases subject to Section 10).

2. Employee Benefits. During the Employment Term, Executive will be
eligible to participate in accordance with the terms of all Company employee
benefit plans that are applicable to other senior executives of the Company, as
such plans and terms may exist from time to time. The benefits available to
Executive may be greater than (but will not be less than) those provided to the
Company's other senior executives.

3. At-Will Employment. Executive and the Company agree that Executive's
employment with the Company constitutes "at-will" employment. Executive and the
Company acknowledge that this employment relationship may be terminated at any
time, upon written notice to the other party, with or without good cause or for
any or no cause, at the option either of the Company or Executive. However, as
described in this Agreement, Executive may be entitled to severance benefits
depending upon the circumstances of Executive's termination of employment.

<PAGE> 2

4. Compensation.

(a) Base Salary. During the Employment Term, the Company will pay
Executive as compensation for his services a base salary at the annualized rate
of $350,000 (the "Base Salary"). The Base Salary will be paid through payroll
periods that are consistent with the Company's normal payroll practices, but in
all events will not be less frequent than once per month and will be subject to
the usual, required withholding. The Compensation Committee of the Board (the
"Committee") will reevaluate the Base Salary at least annually and may increase
the Base Salary in accordance with its normal practices. The Base Salary will
not be reduced without Executive's consent.

(b) Bonuses. For each fiscal year of the Company, Executive will
be eligible to receive a target bonus of up to 100% of his then Base Salary
based upon the achievement of performance criteria specified by the Committee.
The actual amount of the bonus payable for any year will depend upon the extent
to which the applicable performance criteria have been satisfied. Any bonus that
actually is earned will be paid as soon as practicable (but no later than 2_
months) after the end of the fiscal year for which the bonus is earned, but only
if Executive was employed with the Company through the end of the fiscal year.

(c) Stock Options. At least once during each fiscal year of the
Company, the Compensation Committee will consider granting Executive an option
or options to purchase shares of the Company's common stock ("Shares") at a per
Share exercise price equal to no more than the fair market value per Share on
the grant date(s) of the option(s). The number and terms and conditions of any
options granted to Executive will be determined in the discretion of the
Committee, but the Committee generally will seek to grant options to Executive
in an amount and on terms and conditions that are at least as favorable as
option grants received by senior officers of companies comparable to the
Company.

5. Severance.

(a) Involuntary Termination other than for Cause, Death or
Disability. If the Company terminates Executive's employment with the Company
without his consent and for a reason other than "Cause" (as defined below),
Executive becoming "Disabled" (as defined below) or Executive's death, then
promptly following such termination of employment, Executive will (i) receive a
lump-sum payment equal to 100% of the Base Salary and target bonus, (ii) receive
all accrued vacation, expense reimbursements and any other benefits due to
Executive through the date of termination of employment in accordance with the
Company's then existing employee benefit plans and policies, (iii) be entitled
to immediate 100% vesting of any Company stock options (whether granted to
Executive on, before or after the date of this Agreement), (iv) have four (4)
years following termination of employment to exercise his vested stock options
(or if sooner, until the maximum term of the option), (v) be paid his then
existing Base Salary and target bonus for a period of two (2) years following
his termination of employment, (vi) receive Company-paid coverage for a period
of three (3) years for himself and his eligible dependents under the Company's
health benefit plans (or, at the Company's option, coverage under a separate
plan), providing benefits that are no less favorable than those provided under
the Company's plans immediately prior to his termination of employment, (vii) be
entitled to reimbursement of all costs incurred by Executive in relocating his

-2-
<PAGE> 3
family and residence from Santa Rosa, California area to the Los Altos Hills,
California area (including, but not limited to, temporary housing and any
commission paid on the sale of his home in the Santa Rosa area), (viii) be paid
the amount of any capital loss incurred by him from the good faith sale of his
home in the Santa Rosa, California area, (ix) be paid an amount sufficient to
pay federal and state income taxes arising from the payments made by the Company
pursuant to clauses (vii) and (viii) of this sentence so that after considering
payments under this clause (ix), Executive will retain a net amount equal to the
amounts paid to him pursuant to such clauses, and (x) receive such other
compensation or benefits from the Company as may be required by law (for example
under Section 4980B of the Code). All payments and benefits will be subject to
applicable withholding.

(b) Voluntary Termination for Good Reason. If Executive
voluntarily terminates his employment with the Company for "Good Reason" (as
defined below) then Executive will be entitled to the same payments and benefits
provided in Section 5(a) above (and subject to the same terms and conditions
provided in Section 5(a)).

(c) Other Voluntary Terminations. If Executive voluntarily
terminates his employment with the Company without Good Reason but within ninety
(90) days after a "Change of Control" (as defined below) then Executive will be
entitled to the same payments and benefits provided in Section 5(a) above (and
subject to the same terms and conditions provided in Section 5(a)). Except to
the limited extent provided in the preceding sentence, if Executive voluntarily
terminates his employment with the Company without Good Reason, then Executive
will (i) receive the Base Salary through the date of termination of employment,
(ii) receive all accrued vacation, expense reimbursements and any other benefits
due to Executive through the date of termination of employment in accordance
with established Company plans and policies, and (iii) not be entitled to any
other compensation or benefits (including, without limitation, accelerated
vesting of stock options) from the Company except to the extent provided under
the applicable stock option agreement(s) or as may be required by law (for
example, "COBRA" coverage under Section 4980B of the Code). All payments and
benefits will be subject to applicable withholding.

(d) Termination due to Death or Disability. If Executive's
employment with the Company is terminated due to his death or his becoming
Disabled, then Executive or Executive's estate (as the case may be) will (i)
receive the Base Salary through the date of termination of employment, (ii) be
entitled to immediate 100% vesting of any Company stock options (whether granted
to Executive on, before or after the date of this Agreement), (iii) receive
Company-paid coverage for a period of three (3) years for Executive (if
applicable) and Executive's eligible dependents under the Company's health
benefit plans (or, at the Company's option, coverage under a separate plan),
providing benefits that are no less favorable than those provided under the
Company's plans immediately prior to Executive's death, (iv) receive all accrued
vacation, expense reimbursements and any other benefits due to Executive through
the date of termination of employment in accordance with Company-provided or
paid plans and policies, and (v) not be entitled to any other compensation or
benefits from the Company except to the extent required by law (for example,
under Section 4980B of the Code).

-3-
<PAGE> 4

(e) Involuntary Termination for Cause. If the Company terminates
Executive's employment with the Company for Cause, then Executive will (i)
receive the Base Salary through the date of termination of employment, (ii)
receive all accrued vacation, expense reimbursements and any other benefits due
to Executive through the date of termination of employment in accordance with
established Company plans and policies, and (iii) not be entitled to any other
compensation or benefits (including, without limitation, accelerated vesting of
stock options) from the Company except to the extent provided under the
applicable stock option agreement(s) or as may be required by law (for example,
under Section 4980B of the Code).

(f) Cause. For purposes of this Agreement, "Cause" means
intentional misconduct that has a material adverse effect on the Company.
Misconduct by Executive will be considered Cause only if Executive has received
written notice from the Board of the misconduct and Executive has not cured the
misconduct within fifteen (15) business days of his receipt of the notice.

(g) Change of Control. For purposes of this Agreement, "Change of
Control" means (i) the sale, lease, conveyance or other disposition of all or
substantially all of the Company's assets to any "person" (as such term is used
in Section 13(d) of the Securities Exchange Act of 1934, as amended), entity or
group of persons acting in concert; (ii) any "person" or group of persons
becoming the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing 35% or more of
the total voting power represented by the Company's then outstanding voting
securities; (iii) a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation that would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or its controlling entity) at
least 50% of the total voting power represented by the voting securities of the
Company or such surviving entity (or its controlling entity) outstanding
immediately after such merger or consolidation; or (iv) a contest for the
election or removal of members of the Board that results in the removal from the
Board of at least 50% of the incumbent members of the Board.

(h) Disabled. For purposes of this Agreement, "Disabled" means
Executive being unable to perform the principal functions of his duties due to a
physical or mental impairment, but only if such inability has lasted or is
reasonably expected to last for at least twelve months. Whether Executive is
Disabled shall be determined by the Committee based on evidence provided by one
or more physicians selected by the Committee.

(i) Good Reason. For purposes of this Agreement, "Good Reason"
means (without Executive's consent) (i) a material reduction in his title,
authority, status, or responsibilities, (ii) a material breach by the Company of
its obligations under this Agreement, or (iii) a relocation of Executive's
principal place of employment by more than twenty five (25) miles.

-4-
<PAGE> 5

6. Golden Parachute Excise Tax. In the event that the benefits provided
for in this Agreement or otherwise payable to Executive (including, but not by
way of limitation, any accelerated vesting on stock options) (the "Total
Payments") would subject Executive to the excise tax (the "Excise Tax") imposed
under Section 4999 of the Code, then the Company will pay Executive (i) an
amount sufficient to pay such excise tax, and (ii) an additional amount
sufficient to pay the excise tax and federal and state income taxes arising from
the payments made by the Company pursuant to this sentence. Any amount required
to paid to Executive under this Section 6 will be paid to him (and/or paid to
the appropriate authorities as tax withholding on Executive's behalf) no later
than five (5) days prior to the time when the excise and/or income taxes are
due. In addition, the Company will use its reasonable best efforts to pay the
amount to Executive or the appropriate authorities as early as administratively
practicable after the amount of the excise tax is determined, but in no event
will the Company be required to pay the amount earlier than sixty (60) days
before the excise tax is due. The determination of Executive's excise tax
liability and the amount, if any, required to be paid under this Section 6 will
be made in writing by the Company's independent auditors (the "Accountants").
For purposes of making the calculations required by this Section 6, the
Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of Sections 280G and 4999 of the Code. The Company
and the Executive will furnish to the Accountants such information and documents
as the Accountants may reasonably request in order to make a determination under
this Section 6. The Company will pay all costs the Accountants may reasonably
incur in connection with any calculations contemplated by this Section 6.

7. Assignment. This Agreement will be binding upon and inure to the
benefit of (a) the heirs, executors and legal representatives of Executive upon
Executive's death and (b) any successor of the Company. Any such successor of
the Company will be deemed substituted for the Company under the terms of this
Agreement for all purposes. For this purpose, "successor" means any person,
firm, corporation or other business entity which at any time, whether by
purchase, merger or otherwise, directly or indirectly acquires all or
substantially all of the assets or business of the Company. None of the rights
of Executive to receive any form of compensation payable pursuant to this
Agreement may be assigned or transferred except by will or the laws of descent
and distribution. Any other attempted assignment, transfer, conveyance or other
disposition of Executive's right to compensation or other benefits will be null
and void.

-5-
<PAGE> 6

8. Notices. All notices, requests, demands and other communications
called for hereunder shall be in writing and shall be deemed given (i) on the
date of delivery if delivered personally, (ii) one (1) day after being sent by a
well established commercial overnight service, or (iii) four (4) days after
being mailed by registered or certified mail, return receipt requested, prepaid
and addressed to the parties or their successors at the following addresses, or
at such other addresses as the parties may later designate in writing:

If to the Company:

ATG Group, Inc.
100 Stony Point Road Suite 130
Santa Rosa, CA 95401

Attn: Chairman, Compensation Committee of the Board of Directors

If to Executive:

9. Severability. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement will continue in full force and effect without said
provision.

10. Non-Competition and Non-Solicitation. For a period beginning on the
Effective Date and ending one year after the Executive ceases to be employed by
the Company, Executive, directly or indirectly, whether as employee, owner, sole
proprietor, partner, director, member, consultant, agent, founder, co-venturer
or otherwise, will: (i) not engage, participate or invest in any business
activity anywhere in the United States that is directly competitive with the
principal markets, products and services of the Company at the time of
Executive's termination; provided, however, that it will not be a violation of
this Section 10(a) for Executive to own (as a passive investment): (A) not more
than two percent of any class of publicly traded securities of any entity or (B)
not more than five percent of any class of non-publicly traded securities of any
entity; (ii) not solicit, induce or influence any person to leave employment
with the Company; (iii) not directly or indirectly solicit business from any of
the Company's customers and users on behalf of any business that directly
competes with the principal business of the Company.

11. Entire Agreement. This Agreement represents the entire agreement and
understanding between the Company and Executive concerning Executive's
employment relationship with the Company, and supersedes and replaces any and
all prior agreements and understandings concerning Executive's employment
relationship with the Company.

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<PAGE> 7

12. Arbitration and Equitable Relief.

(a) Except as provided in Section 12(d) below, Executive and the
Company agree that to the extent permitted by law, any dispute or controversy
arising out of, relating to, or in connection with this Agreement, or the
interpretation, validity, construction, performance, breach, or termination
thereof will be settled by arbitration to be held in or about Palo Alto,
California, in accordance with the National Rules for the Resolution of
Employment Disputes then in effect of the American Arbitration Association (the
"Rules"). The arbitrator may grant injunctions or other relief in such dispute
or controversy. The decision of the arbitrator will be final, conclusive and
binding on the parties to the arbitration. Judgment may be entered on the
arbitrator's decision in any court having jurisdiction.

(b) The arbitrator will apply California law to the merits of any
dispute or claim, without reference to rules of conflict of law. Executive
hereby expressly consents to the personal jurisdiction of the state and federal
courts located in California for any action or proceeding arising from or
relating to this Agreement and/or relating to any arbitration in which the
parties are participants.

(c) The Company will pay the direct costs and expenses of the
arbitration. The Company and Executive each will separately pay its counsel fees
and expenses.

(d) The Company or Executive may apply to any court of competent
jurisdiction for a temporary restraining order, preliminary injunction, or other
interim or conservatory relief, as necessary to enforce the provisions of the
confidential information and trade secrets agreement between the Company and
Executive, without breach of this arbitration agreement and without abridgement
of the powers of the arbitrator.

(e) Executive understands that nothing in Section 12 modifies
Executive's at-will status. Either the Company or Executive can terminate the
employment relationship at any time, with or without cause.

(f) EXECUTIVE HAS READ AND UNDERSTANDS SECTION 12, WHICH
DISCUSSES ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT,
EXECUTIVE AGREES TO THE EXTENT PERMITTED BY LAW, TO SUBMIT ANY FUTURE CLAIMS
ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE
INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH, OR TERMINATION
THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A
WAIVER OF EXECUTIVE'S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL
DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EXECUTIVE RELATIONSHIP,
INCLUDING BUT NOT LIMITED TO, THE FOLLOWING CLAIMS:

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<PAGE> 8

(i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF
EMPLOYMENT; BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT
OF GOOD FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR
INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL
MISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR
PROSPECTIVE ECONOMIC ADVANTAGE; AND DEFAMATION;

(ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL
STATE OR MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, THE AMERICANS WITH
DISABILITIES ACT OF 1990, THE FAIR LABOR STANDARDS ACT, AND ANY LAW OF THE STATE
OF CALIFORNIA; AND

(iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS
AND REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.

13. No Oral Modification, Cancellation or Discharge. This Agreement may
be changed or terminated only in writing (signed by Executive and the Company).

14. Withholding. The Company is authorized to withhold, or cause to be
withheld, from any payment or benefit under this Agreement the full amount of
any applicable withholding taxes.

15. Governing Law. This Agreement will be governed by the laws of the
State of California (with the exception of its conflict of laws provisions).

16. Effective Date. This Agreement is effective November 24, 1999.

17. Acknowledgment. Executive acknowledges that he has had the
opportunity to discuss this matter with and obtain advice from his private
attorney, has had sufficient time to, and has carefully read and fully
understands all the provisions of this Agreement, and is knowingly and
voluntarily entering into this Agreement.

IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
respective dates set forth below:

EXECUTIVE

/s/ CLIFFORD G. RUDOLPH
----------------------------------- Date: November 24, 1999
Clifford G. Rudolph

ATG GROUP, INC.

/s/ BLAIR P. WHITAKER
---------------------------------- Date: November 24, 1999
Blair P. Whitaker
Board Member and Member of the Compensation Committee

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<PAGE> 1
EXHIBIT 10.6

ATG GROUP, INC.

EMPLOYMENT AGREEMENT

This Agreement is made by and between ATG Group, Inc. (the "Company"),
and Robert T. Warstler ("Executive") as of December 1, 1999.

1. Duties and Scope of Employment.

(a) Positions and Duties. Executive will continue to serve as
President and Chief Operating Officer. Executive will render such business and
professional services in the performance of his duties, consistent with
Executive's position within the Company, as shall reasonably be assigned to him
by the Company's Board of Directors (the "Board") and/or its Chief Executive
Officer (the "CEO"). The period of Executive's employment under this Agreement
is referred to herein as the "Employment Term."

(b) Obligations. During the Employment Term, Executive will
devote his full business efforts and time to the Company. For the duration of
the Employment Term, Executive agrees not to actively engage in any other
employment, occupation or consulting activity for any direct or indirect
remuneration without the prior approval of the CEO (which approval will not be
unreasonably withheld); provided, however, that Executive may, without the
approval of the CEO, serve in any capacity with any civic, educational or
charitable organization, or as a member of corporate Boards of Directors (but in
all cases subject to Section 10).

4. Compensation.

(a) Base Salary. During the Employment Term, the Company will pay
Executive as compensation for his services a base salary at the annualized rate
of $275,000 (the "Base Salary"). The Base Salary will be paid through payroll
periods that are consistent with the Company's normal payroll practices, but in
all events will not be less frequent than once per month and will be subject to
the usual, required withholding. The Compensation Committee of the Board (the
"Committee")

<PAGE> 2

will reevaluate the Base Salary at least annually and may increase the Base
Salary in accordance with its normal practices. The Base Salary will not be
reduced without Executive's consent.

(b) Bonuses. For each fiscal year of the Company, Executive will
be eligible to receive a target bonus of up to 100% of his then Base Salary
based upon the achievement of performance criteria specified by the Committee.
The actual amount of the bonus payable for any year will depend upon the extent
to which the applicable performance criteria have been satisfied. Any bonus that
actually is earned will be paid as soon as practicable (but no later than 2 1/2
months) after the end of the fiscal year for which the bonus is earned, but only
if Executive was employed with the Company through the end of the fiscal year.

5. Severance.

(a) Involuntary Termination other than for Cause, Death or
Disability. Except as provided in the following sentence and Section 5(b), if
the Company terminates Executive's employment with the Company without his
consent and for a reason other than "Cause" (as defined below), Executive
becoming "Disabled" (as defined below) or Executive's death, then promptly
following such termination of employment, Executive will (i) receive a lump-sum
payment equal to 100% of the Base Salary and target bonus, (ii) receive all
accrued vacation, expense reimbursements and any other benefits due to Executive
through the date of termination of employment in accordance with the Company's
then existing employee benefit plans and policies, (iii) be entitled to an
additional twelve (12) months vesting of any Company stock options (whether
granted to Executive on, before or after the date of this Agreement), (iv) have
four (4) years following termination of employment to exercise his vested
Company stock options (whether granted on, before or after the date of this
Agreement), (v) be paid his then existing Base Salary for a period of six (6)
months following his termination of employment, (vi) be 50% of his target annual
bonus not later than six (6) months following his termination of employment,
(vii) receive Company-paid coverage for a period of eighteen (18) months for
himself and his eligible dependents under the Company's health benefit plans
(or, at the Company's option, coverage under a separate plan), providing
benefits that are no less favorable than those provided under the Company's
plans immediately prior to his termination of employment, (viii) receive such
other compensation or benefits from the Company as may be required by law (for
example, under Section 4980B of the Code). If the Company terminates Executive's
employment with the Company without his consent within eighteen (18) months
after a "Change of Control" (as defined below) and for a reason other than
Cause, then promptly following such termination of employment, Executive will
(i) receive a lump-sum payment equal to 100% of the Base Salary and target
bonus, (ii) receive all accrued vacation, expense reimbursements and any other
benefits due to Executive through the date of

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<PAGE> 3

termination of employment in accordance with the Company's then existing
employee benefit plans and policies, (iii) be entitled to immediate 100% vesting
of any stock options granted to Executive (whether granted to Executive on,
before or after the date of this Agreement), (iv) have four (4) years following
termination of employment to exercise his vested Company stock options (whether
granted on, before or after the date of this Agreement), (v) be paid his then
existing Base Salary and target bonus for a period of one (1) year following his
termination of employment, (vi) receive Company-paid coverage for a period of
two (2) years for himself and his eligible dependents under the Company's health
benefit plans (or, at the Company's option, coverage under a separate plan),
providing benefits that are no less favorable than those provided under the
Company's plans immediately prior to his termination of employment, (vii)
receive such other compensation or benefits from the Company as may be required
by law (for example, under Section 4980B of the Code). All payments and benefits
will be subject to applicable withholding.

(b) Certain Involuntary Terminations before a Change of Control.
If (i) the Company terminates Executive's employment with the Company in
circumstances described in the first sentence of Section 5(a), (ii) such
termination occurs within thirty (30) days before the Company enters into a
definitive agreement (or term sheet) that if the transactions contemplated
therein are completed would result in a Change of Control, and (iii) such
transactions actually are completed, then Executive's termination of employment
instead shall be deemed to be in accordance with the second sentence of Section
5(a) (thus entitling him to the benefits provided in such second sentence).

(c) Voluntary Termination for Good Reason. Except as provided in
the following sentence, if Executive voluntarily terminates his employment with
the Company for "Good Reason" (as defined below), then promptly following such
termination of employment, Executive will (i) receive a lump-sum payment equal
to 100% of the Base Salary and target bonus, (ii) receive all accrued vacation,
expense reimbursements and any other benefits due to Executive through the date
of termination of employment in accordance with the Company's then existing
employee benefit plans and policies, (iii) be entitled to an additional twelve
(12) months vesting of any Company stock options (whether granted to Executive
on, before or after the date of this Agreement), (iv) have four (4) years
following termination of employment to exercise his vested Company stock options
(whether granted on, before or after the date of this Agreement), (v) be paid
his then existing Base Salary for a period of six (6) months following his
termination of employment, (vi) be 50% of his target annual bonus not later than
six (6) months following his termination of employment, (vii) receive
Company-paid coverage for a period of eighteen (18) months for himself and his
eligible dependents under the Company's health benefit plans (or, at the
Company's option, coverage under a separate plan), providing benefits that are
no less favorable than those provided under the Company's plans immediately
prior to his termination of employment, (viii) receive such other compensation
or benefits from the Company as may be required by law (for example, under
Section 4980B of the Code). If Executive voluntarily terminates his employment
with the Company for Good Reason within eighteen (18) months after a Change of
Control, then promptly following such termination of employment, Executive will
(i) receive a lump-sum payment equal to 100% of the Base Salary and target
bonus, (ii) receive all accrued vacation, expense reimbursements and any other
benefits due to Executive through the date of termination of employment in
accordance with the Company's then existing employee benefit plans and policies,
(iii) be entitled to immediate 100% vesting of any stock options granted to
Executive (whether granted to Executive on, before or

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<PAGE> 4

after the date of this Agreement), (iv) have four (4) years following
termination of employment to exercise his vested Company stock options (whether
granted on, before or after the date of this Agreement), (v) be paid his then
existing Base Salary and target bonus for a period of one (1) year following his
termination of employment, (vi) receive Company-paid coverage for a period of
two (2) years for himself and his eligible dependents under the Company's health
benefit plans (or, at the Company's option, coverage under a separate plan),
providing benefits that are no less favorable than those provided under the
Company's plans immediately prior to his termination of employment, (vii)
receive such other compensation or benefits from the Company as may be required
by law (for example, under Section 4980B of the Code). All payments and benefits
will be subject to applicable withholding.

(d) Other Voluntary Terminations. If Executive voluntarily
terminates his employment with the Company without Good Reason, then Executive
will (i) receive the Base Salary through the date of termination of employment,
(ii) receive all accrued vacation, expense reimbursements and any other benefits
due to Executive through the date of termination of employment in accordance
with established Company plans and policies, and (iii) not be entitled to any
other compensation or benefits (including, without limitation, accelerated
vesting of stock options) from the Company except to the extent provided under
the applicable stock option agreement(s) or as may be required by law (for
example, "COBRA" coverage under Section 4980B of the Code). All payments and
benefits will be subject to applicable withholding.

(e) Termination due to Death or Disability. If Executive's
employment with the Company is terminated due to his death or his becoming
Disabled, then Executive or Executive's estate (as the case may be) will (i)
receive the Base Salary through the date of termination of employment, (ii) be
entitled to immediate vesting of 50% of any Company stock options held by
Executive that were unvested immediately prior to his termination of employment
(whether the options were granted on, before or after the date of this
Agreement), (iii) receive Company-paid coverage for a period of two (2) years
for Executive (if applicable) and Executive's eligible dependents under the
Company's health benefit plans (or, at the Company's option, coverage under a
separate plan), providing benefits that are no less favorable than those
provided under the Company's plans immediately prior to Executive's death, (iv)
receive all accrued vacation, expense reimbursements and any other benefits due
to Executive through the date of termination of employment in accordance with
Company-provided or paid plans and policies, and (v) not be entitled to any
other compensation or benefits from the Company except to the extent required by
law (for example, under Section 4980B of the Code). For purposes of clause (ii)
of the preceding sentence, the options having the lowest exercise price(s) shall
become vested.

(f) Involuntary Termination for Cause. If the Company terminates
Executive's employment with the Company for Cause, then Executive will (i)
receive the Base Salary through the date of termination of employment, (ii)
receive all accrued vacation, expense reimbursements and any other benefits due
to Executive through the date of termination of employment in accordance with
established Company plans and policies, and (iii) not be entitled to any other
compensation or benefits (including, without limitation, accelerated vesting of
stock options) from the Company except to the extent provided under the
applicable stock option agreement(s) or as may be required by law (for example,
under Section 4980B of the Code).

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(g) Cause. For purposes of this Agreement, "Cause" means
intentional misconduct that has a material adverse effect on the Company.
Misconduct by Executive will be considered Cause only if Executive has received
written notice from the CEO of the misconduct and Executive has not cured the
misconduct within fifteen (15) business days of his receipt of the notice.

(h) Change of Control. For purposes of this Agreement, "Change of
Control" means (i) the sale, lease, conveyance or other disposition of all or
substantially all of the Company's assets to any "person" (as such term is used
in Section 13(d) of the Securities Exchange Act of 1934, as amended), entity or
group of persons acting in concert; (ii) any "person" or group of persons
becoming the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing 35% or more of
the total voting power represented by the Company's then outstanding voting
securities; (iii) a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation that would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or its controlling entity) at
least 50% of the total voting power represented by the voting securities of the
Company or such surviving entity (or its controlling entity) outstanding
immediately after such merger or consolidation; or (iv) a contest for the
election or removal of members of the Board that results in the removal from the
Board of at least 50% of the incumbent members of the Board.

(i) Disabled. For purposes of this Agreement, "Disabled" means
Executive being unable to perform the principal functions of his duties due to a
physical or mental impairment, but only if such inability has lasted or is
reasonably expected to last for at least six months. Whether Executive is
Disabled shall be determined by the Committee based on evidence provided by one
or more physicians selected by the Committee.

(j) Good Reason. For purposes of this Agreement, "Good Reason"
means (without Executive's consent) (i) a material reduction in his title,
authority, status, or responsibilities, (ii) a material breach by the Company of
its obligations under this Agreement, or (iii) a relocation of Executive's
principal place of employment by more than twenty five (25) miles. With respect
to a termination of employment that occurs during the six (6) month period
immediately following a Change of Control, clause (i) of the preceding sentence
shall be applied by replacing the word "reduction" with the word "change."

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days before the excise tax is due. The determination of Executive's excise tax
liability and the amount, if any, required to be paid under this Section 6 will
be made in writing by the Company's independent auditors (the "Accountants").
For purposes of making the calculations required by this Section 6, the
Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of Sections 280G and 4999 of the Code. The Company
and the Executive will furnish to the Accountants such information and documents
as the Accountants may reasonably request in order to make a determination under
this Section 6. The Company will pay all costs the Accountants may reasonably
incur in connection with any calculations contemplated by this Section 6.

If to the Company:

ATG Group, Inc.
100 Stony Point Road Suite 130
Santa Rosa, CA 95401

Attn: Chairman and Chief Executive Officer

If to Executive:

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12. Arbitration and Equitable Relief.

(c) The Company will pay the direct costs and expenses of the
arbitration. The Company and Executive each will separately pay its counsel fees
and expenses.

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(e) Executive understands that nothing in Section 12 modifies
Executive's at-will status. Either the Company or Executive can terminate the
employment relationship at any time, with or without cause.

(iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS
AND REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.

13. No Oral Modification, Cancellation or Discharge. This Agreement may
be changed or terminated only in writing (signed by Executive and the Company).

14. Withholding. The Company is authorized to withhold, or cause to be
withheld, from any payment or benefit under this Agreement the full amount of
any applicable withholding taxes.

15. Governing Law. This Agreement will be governed by the laws of the
State of California (with the exception of its conflict of laws provisions).

16. Effective Date. This Agreement is effective December 1, 1999.

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IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
respective dates set forth below:

EXECUTIVE

/s/ ROBERT T. WARSTLER
---------------------------------- Date: December 1, 1999
Robert T. Warstler

ATG GROUP, INC.

/s/ CLIFFORD G. RUDOLPH
---------------------------------- Date: December 1, 1999
Clifford G. Rudolph
Chairman and Chief Executive Officer

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<PAGE> 1
EXHIBIT 10.7

ATG GROUP, INC.

EMPLOYMENT AGREEMENT

This Agreement is made by and between ATG Group, Inc. (the "Company"),
and Thomas A. Grina ("Executive") as of December 1, 1999.

1. Duties and Scope of Employment.

(a) Positions and Duties. Executive will continue to serve as Sr.
Vice President & CFO. Executive will render such business and professional
services in the performance of his duties, consistent with Executive's position
within the Company, as shall reasonably be assigned to him by the Company's
Board of Directors (the "Board") and/or its Chief Executive Officer (the "CEO").
The period of Executive's employment under this Agreement is referred to herein
as the "Employment Term."

4. Compensation.

<PAGE> 2

will reevaluate the Base Salary at least annually and may increase the Base
Salary in accordance with its normal practices. The Base Salary will not be
reduced without Executive's consent.

5. Severance.

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<PAGE> 3

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<PAGE> 4

after the date of this Agreement), (v) be paid his then existing Base Salary and
target bonus for a period of one (1) year following his termination of
employment, (vi) receive Company-paid coverage for a period of two (2) years for
himself and his eligible dependents under the Company's health benefit plans
(or, at the Company's option, coverage under a separate plan), providing
benefits that are no less favorable than those provided under the Company's
plans immediately prior to his termination of employment, (vii) receive such
other compensation or benefits from the Company as may be required by law (for
example, under Section 4980B of the Code). All payments and benefits will be
subject to applicable withholding.

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If to the Company:

ATG Group, Inc.
100 Stony Point Road Suite 130
Santa Rosa, CA 95401

Attn: Chairman and Chief Executive Officer

If to Executive:

Severability. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement will continue in full force and effect without said
provision.

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Non-Competition and Non-Solicitation. For a period beginning on the
Effective Date and ending one year after the Executive ceases to be employed by
the Company, Executive, directly or indirectly, whether as employee, owner, sole
proprietor, partner, director, member, consultant, agent, founder, co-venturer
or otherwise, will: (i) not engage, participate or invest in any business
activity anywhere in the United States that is directly competitive with the
principal markets, products and services of the Company at the time of
Executive's termination; provided, however, that it will not be a violation of
this Section 10(a) for Executive to own (as a passive investment): (A) not more
than two percent of any class of publicly traded securities of any entity or (B)
not more than five percent of any class of non-publicly traded securities of any
entity; (ii) not solicit, induce or influence any person to leave employment
with the Company; (iii) not directly or indirectly solicit business from any of
the Company's customers and users on behalf of any business that directly
competes with the principal business of the Company.

9. Entire Agreement. This Agreement represents the entire agreement and
understanding between the Company and Executive concerning Executive's
employment relationship with the Company, and supersedes and replaces any and
all prior agreements and understandings concerning Executive's employment
relationship with the Company.

10. Arbitration and Equitable Relief.

(c) The Company will pay the direct costs and expenses of the
arbitration. The Company and Executive each will separately pay its counsel fees
and expenses.

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<PAGE> 8

(e) Executive understands that nothing in Section 12 modifies
Executive's at-will status. Either the Company or Executive can terminate the
employment relationship at any time, with or without cause.

(iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS
AND REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.

11. No Oral Modification, Cancellation or Discharge. This Agreement may
be changed or terminated only in writing (signed by Executive and the Company).

12. Withholding. The Company is authorized to withhold, or cause to be
withheld, from any payment or benefit under this Agreement the full amount of
any applicable withholding taxes.

13. Governing Law. This Agreement will be governed by the laws of the
State of California (with the exception of its conflict of laws provisions).

14. Effective Date. This Agreement is effective December 1, 1999.

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<PAGE> 9
15. Acknowledgment. Executive acknowledges that he has had the
opportunity to discuss this matter with and obtain advice from his private
attorney, has had sufficient time to, and has carefully read and fully
understands all the provisions of this Agreement, and is knowingly and
voluntarily entering into this Agreement.

IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
respective dates set forth below:

EXECUTIVE

/s/ THOMAS A. GRINA
----------------------------------- Date: December 1, 1999
Thomas A. Grina

ATG GROUP, INC.

/s/ CLIFFORD G. RUDOLPH
----------------------------------- Date: December 1, 1999
Clifford G. Rudolph
Chairman and Chief Executive Officer

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<PAGE> 1
EXHIBIT 10.8

ATG GROUP, INC.

EMPLOYMENT AGREEMENT

This Agreement is made by and between ATG Group, Inc. (the "Company"),
and Curtis E. Wheeling ("Executive") as of December 1st, 1999.

1. Duties and Scope of Employment.

(a) Positions and Duties. Executive will continue to serve as Sr.
Vice President & CTO. Executive will render such business and professional
services in the performance of his duties, consistent with Executive's position
within the Company, as shall reasonably be assigned to him by the Company's
Board of Directors (the "Board") and/or its Chief Executive Officer (the "CEO").
The period of Executive's employment under this Agreement is referred to herein
as the "Employment Term."

4. Compensation.

(a) Base Salary. During the Employment Term, the Company will pay
Executive as compensation for his services a base salary at the annualized rate
of $175,000 (the "Base Salary"). The Base Salary will be paid through payroll
periods that are consistent with the Company's normal payroll practices, but in
all events will not be less frequent than once per month and will be subject to
the usual, required withholding. The Compensation Committee of the Board (the
"Committee")

<PAGE> 2

will reevaluate the Base Salary at least annually and may increase the Base
Salary in accordance with its normal practices. The Base Salary will not be
reduced without Executive's consent.

(b) Bonuses. For each fiscal year of the Company, Executive will
be eligible to receive a target bonus of up to 100% of his then Base Salary
based upon the achievement of performance criteria specified by the Committee.
The actual amount of the bonus payable for any year will depend upon the extent
to which the applicable performance criteria have been satisfied. Any bonus that
actually is earned will be paid as soon as practicable (but no later than 2 1/2
months) after the end of the fiscal year for which the bonus is earned, but only
if Executive was employed with the Company through the end of the fiscal year.

5. Severance.

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If to the Company:

ATG Group, Inc.
100 Stony Point Road Suite 130
Santa Rosa, CA 95401

Attn: Chairman and Chief Executive Officer

If to Executive:

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<PAGE> 7

12. Arbitration and Equitable Relief.

(c) The Company will pay the direct costs and expenses of the
arbitration. The Company and Executive each will separately pay its counsel fees
and expenses.

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<PAGE> 8

(e) Executive understands that nothing in Section 12 modifies
Executive's at-will status. Either the Company or Executive can terminate the
employment relationship at any time, with or without cause.

(iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS
AND REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.

13. No Oral Modification, Cancellation or Discharge. This Agreement may
be changed or terminated only in writing (signed by Executive and the Company).

14. Withholding. The Company is authorized to withhold, or cause to be
withheld, from any payment or benefit under this Agreement the full amount of
any applicable withholding taxes.

15. Governing Law. This Agreement will be governed by the laws of the
State of California (with the exception of its conflict of laws provisions).

16. Effective Date. This Agreement is effective December 1, 1999.

-8-
<PAGE> 9

IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
respective dates set forth below:

EXECUTIVE

/s/ CURTIS E. WHEELING
-------------------------------- Date: December 1, 1999
Curtis E. Wheeling

ATG GROUP, INC.

/s/ CLIFFORD G. RUDOLPH
-------------------------------- Date: December 1, 1999
Clifford G. Rudolph
Chairman and Chief Executive Officer

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<PAGE> 1
EXHIBIT 10.9

ATG GROUP, INC.

EMPLOYMENT AGREEMENT

This Agreement is made by and between ATG Group, Inc. (the "Company"),
and Katharine S. Klein ("Executive") as of December 1, 1999.

1. Duties and Scope of Employment.

(a) Positions and Duties. Executive will continue to serve as Sr.
Vice President Corporate Development & Strategic Planning. Executive will render
such business and professional services in the performance of her duties,
consistent with Executive's position within the Company, as shall reasonably be
assigned to him by the Company's Board of Directors (the "Board") and/or its
Chief Executive Officer (the "CEO"). The period of Executive's employment under
this Agreement is referred to herein as the "Employment Term."

(b) Obligations. During the Employment Term, Executive will
devote her full business efforts and time to the Company. For the duration of
the Employment Term, Executive agrees not to actively engage in any other
employment, occupation or consulting activity for any direct or indirect
remuneration without the prior approval of the CEO (which approval will not be
unreasonably withheld); provided, however, that Executive may, without the
approval of the CEO, serve in any capacity with any civic, educational or
charitable organization, or as a member of corporate Boards of Directors (but in
all cases subject to Section 10).

4. Compensation.

(a) Base Salary. During the Employment Term, the Company will pay
Executive as compensation for her services a base salary at the annualized rate
of $200,000 (the "Base Salary"). The Base Salary will be paid through payroll
periods that are consistent with the Company's normal payroll practices, but in
all events will not be less frequent than once per month and will be subject

<PAGE> 2

to the usual, required withholding. The Compensation Committee of the Board (the
"Committee") will reevaluate the Base Salary at least annually and may increase
the Base Salary in accordance with its normal practices. The Base Salary will
not be reduced without Executive's consent.

(b) Bonuses. For each fiscal year of the Company, Executive will
be eligible to receive a target bonus of up to 100% of her then Base Salary
based upon the achievement of performance criteria specified by the Committee.
The actual amount of the bonus payable for any year will depend upon the extent
to which the applicable performance criteria have been satisfied. Any bonus that
actually is earned will be paid as soon as practicable (but no later than 2_
months) after the end of the fiscal year for which the bonus is earned, but only
if Executive was employed with the Company through the end of the fiscal year.

5. Severance.

(a) Involuntary Termination other than for Cause, Death or
Disability. Except as provided in the following sentence and Section 5(b), if
the Company terminates Executive's employment with the Company without her
consent and for a reason other than "Cause" (as defined below), Executive
becoming "Disabled" (as defined below) or Executive's death, then promptly
following such termination of employment, Executive will (i) receive a lump-sum
payment equal to 100% of the Base Salary and target bonus, (ii) receive all
accrued vacation, expense reimbursements and any other benefits due to Executive
through the date of termination of employment in accordance with the Company's
then existing employee benefit plans and policies, (iii) be entitled to an
additional twelve (12) months vesting of any Company stock options (whether
granted to Executive on, before or after the date of this Agreement), (iv) have
four (4) years following termination of employment to exercise her vested
Company stock options (whether granted on, before or after the date of this
Agreement), (v) be paid her then existing Base Salary for a period of six (6)
months following her termination of employment, (vi) be 50% of her target annual
bonus not later than six (6) months following her termination of employment,
(vii) receive Company-paid coverage for a period of eighteen (18) months for
himself and her eligible dependents under the Company's health benefit plans
(or, at the Company's option, coverage under a separate plan), providing
benefits that are no less favorable than those provided under the Company's
plans immediately prior to her termination of employment, (viii) receive such
other compensation or benefits from the Company as may be required by law (for
example, under Section 4980B of the Code). If the Company terminates Executive's
employment with the Company without her consent within eighteen (18) months
after a "Change of Control" (as defined below) and for a reason other than
Cause, then promptly following such termination of employment, Executive will
(i) receive a lump-sum payment equal to 100% of the Base Salary and target
bonus, (ii) receive all accrued vacation, expense reimbursements and any other
benefits due to Executive through the date of

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<PAGE> 3

termination of employment in accordance with the Company's then existing
employee benefit plans and policies, (iii) be entitled to immediate 100% vesting
of any stock options granted to Executive (whether granted to Executive on,
before or after the date of this Agreement), (iv) have four (4) years following
termination of employment to exercise her vested Company stock options (whether
granted on, before or after the date of this Agreement), (v) be paid her then
existing Base Salary and target bonus for a period of one (1) year following her
termination of employment, (vi) receive Company-paid coverage for a period of
two (2) years for himself and her eligible dependents under the Company's health
benefit plans (or, at the Company's option, coverage under a separate plan),
providing benefits that are no less favorable than those provided under the
Company's plans immediately prior to her termination of employment, (vii)
receive such other compensation or benefits from the Company as may be required
by law (for example, under Section 4980B of the Code). All payments and benefits
will be subject to applicable withholding.

(c) Voluntary Termination for Good Reason. Except as provided in
the following sentence, if Executive voluntarily terminates her employment with
the Company for "Good Reason" (as defined below), then promptly following such
termination of employment, Executive will (i) receive a lump-sum payment equal
to 100% of the Base Salary and target bonus, (ii) receive all accrued vacation,
expense reimbursements and any other benefits due to Executive through the date
of termination of employment in accordance with the Company's then existing
employee benefit plans and policies, (iii) be entitled to an additional twelve
(12) months vesting of any Company stock options (whether granted to Executive
on, before or after the date of this Agreement), (iv) have four (4) years
following termination of employment to exercise her vested Company stock options
(whether granted on, before or after the date of this Agreement), (v) be paid
her then existing Base Salary for a period of six (6) months following her
termination of employment, (vi) be 50% of her target annual bonus not later than
six (6) months following her termination of employment, (vii) receive
Company-paid coverage for a period of eighteen (18) months for himself and her
eligible dependents under the Company's health benefit plans (or, at the
Company's option, coverage under a separate plan), providing benefits that are
no less favorable than those provided under the Company's plans immediately
prior to her termination of employment, (viii) receive such other compensation
or benefits from the Company as may be required by law (for example, under
Section 4980B of the Code). If Executive voluntarily terminates her employment
with the Company for Good Reason within eighteen (18) months after a Change of
Control, then promptly following such termination of employment, Executive will
(i) receive a lump-sum payment equal to 100% of the Base Salary and target
bonus, (ii) receive all accrued vacation, expense reimbursements and any other
benefits due to Executive through the date of termination of employment in
accordance with the Company's then existing employee benefit plans and policies,
(iii) be entitled to immediate 100% vesting of any stock options granted to
Executive (whether granted to Executive on, before or

-3-
<PAGE> 4

after the date of this Agreement), (iv) have four (4) years following
termination of employment to exercise her vested Company stock options (whether
granted on, before or after the date of this Agreement), (v) be paid her then
existing Base Salary and target bonus for a period of one (1) year following her
termination of employment, (vi) receive Company-paid coverage for a period of
two (2) years for himself and her eligible dependents under the Company's health
benefit plans (or, at the Company's option, coverage under a separate plan),
providing benefits that are no less favorable than those provided under the
Company's plans immediately prior to her termination of employment, (vii)
receive such other compensation or benefits from the Company as may be required
by law (for example, under Section 4980B of the Code). All payments and benefits
will be subject to applicable withholding.

(d) Other Voluntary Terminations. If Executive voluntarily
terminates her employment with the Company without Good Reason, then Executive
will (i) receive the Base Salary through the date of termination of employment,
(ii) receive all accrued vacation, expense reimbursements and any other benefits
due to Executive through the date of termination of employment in accordance
with established Company plans and policies, and (iii) not be entitled to any
other compensation or benefits (including, without limitation, accelerated
vesting of stock options) from the Company except to the extent provided under
the applicable stock option agreement(s) or as may be required by law (for
example, "COBRA" coverage under Section 4980B of the Code). All payments and
benefits will be subject to applicable withholding.

(e) Termination due to Death or Disability. If Executive's
employment with the Company is terminated due to her death or her becoming
Disabled, then Executive or Executive's estate (as the case may be) will (i)
receive the Base Salary through the date of termination of employment, (ii) be
entitled to immediate vesting of 50% of any Company stock options held by
Executive that were unvested immediately prior to her termination of employment
(whether the options were granted on, before or after the date of the
Agreement), (iii) receive Company-paid coverage for a period of two (2) years
for Executive (if applicable) and Executive's eligible dependents under the
Company's health benefit plans (or, at the Company's option, coverage under a
separate plan), providing benefits that are no less favorable than those
provided under the Company's plans immediately prior to Executive's death, (iv)
receive all accrued vacation, expense reimbursements and any other benefits due
to Executive through the date of termination of employment in accordance with
Company-provided or paid plans and policies, and (v) not be entitled to any
other compensation or benefits from the Company except to the extent required by
law (for example, under Section 4980B of the Code). For purposes of clause (ii)
of the preceding sentence, the options having the lowest exercise price(s) shall
become vested.

-4-
<PAGE> 5

(i) Disabled. For purposes of this Agreement, "Disabled" means
Executive being unable to perform the principal functions of her duties due to a
physical or mental impairment, but only if such inability has lasted or is
reasonably expected to last for at least six months. Whether Executive is
Disabled shall be determined by the Committee based on evidence provided by one
or more physicians selected by the Committee.

(j) Good Reason. For purposes of this Agreement, "Good Reason"
means (without Executive's consent) (i) a material reduction in her title,
authority, status, or responsibilities, (ii) a material breach by the Company of
its obligations under this Agreement, or (iii) a relocation of Executive's
principal place of employment by more than twenty five (25) miles. With respect
to a termination of employment that occurs during the six (6) month period
immediately following a Change of Control, clause (i) of the preceding sentence
shall be applied by replacing the word "reduction" with the word "change."

-5-
<PAGE> 6

If to the Company:

ATG Group, Inc.
100 Stony Point Road Suite 130
Santa Rosa, CA 95401

Attn: Chairman and Chief Executive Officer

If to Executive:

-6-
<PAGE> 7

12. Arbitration and Equitable Relief.

(c) The Company will pay the direct costs and expenses of the
arbitration. The Company and Executive each will separately pay its counsel fees
and expenses.

-7-
<PAGE> 8

(e) Executive understands that nothing in Section 12 modifies
Executive's at-will status. Either the Company or Executive can terminate the
employment relationship at any time, with or without cause.

(ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE
OR MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, THE AMERICANS WITH
DISABILITIES ACT OF 1990, THE FAIR LABOR STANDARDS ACT, AND ANY LAW OF THE STATE
OF CALIFORNIA; AND

(iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND
REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.

13. No Oral Modification, Cancellation or Discharge. This Agreement may
be changed or terminated only in writing (signed by Executive and the Company).

14. Withholding. The Company is authorized to withhold, or cause to be
withheld, from any payment or benefit under this Agreement the full amount of
any applicable withholding taxes.

15. Governing Law. This Agreement will be governed by the laws of the
State of California (with the exception of its conflict of laws provisions).

16. Effective Date. This Agreement is effective December 1, 1999.

-8-
<PAGE> 9

17. Acknowledgment. Executive acknowledges that he has had the
opportunity to discuss this matter with and obtain advice from her private
attorney, has had sufficient time to, and has carefully read and fully
understands all the provisions of this Agreement, and is knowingly and
voluntarily entering into this Agreement.

IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
respective dates set forth below:

EXECUTIVE

/s/ KATHARINE S. KLEIN
------------------------------------ Date: December 1, 1999
Katharine S. Klein

ATG GROUP, INC.

/s/ CLIFFORD G. RUDOLPH
------------------------------------ Date: December 1, 1999
Clifford G. Rudolph
Chairman and Chief Executive Officer

-9-

<PAGE> 1
EXHIBIT 21.1

SUBSIDIARIES OF REGISTRANT

DIRECT
------
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION
- ---- ----------------------
<S> <C>

Advanced TelCom Group, Inc. Delaware
</TABLE>

INDIRECT
--------
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION
- ---- ----------------------
<S> <C>
Shared Communications Services, Inc. Oregon
NewComm Net, Inc. Delaware
Advanced TelCom Group of Virginia, Incorporated Virginia
NCN Virginia Corporation Virginia
NCN Midlantic Corp. Delaware
</TABLE>

Each of the above corporations conducts business under the names provided.

<PAGE> 1
EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
ATG Group, Inc. and subsidiary

We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.

KPMG LLP

San Francisco
April 14, 2000

<PAGE> 1
EXHIBIT 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use in this
registration statement of our report dated November 19, 1998, with respect to
the financial statements of Shared Communications Services, Inc. as of and for
the years ended September 30, 1997 and 1998, included herein and to all
references to our Firm included in the registration statement.

Arthur Andersen LLP

Portland, Oregon
April 14, 2000

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<FISCAL-YEAR-END> DEC-31-1999
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<PERIOD-END> DEC-31-1999
<CASH> 20,091
<SECURITIES> 0
<RECEIVABLES> 8,094
<ALLOWANCES> (147)
<INVENTORY> 0
<CURRENT-ASSETS> 34,837
<PP&E> 82,721
<DEPRECIATION> (2,648)
<TOTAL-ASSETS> 192,387
<CURRENT-LIABILITIES> 23,809
<BONDS> 0
2,000
7
<COMMON> 1
<OTHER-SE> 126,748
<TOTAL-LIABILITY-AND-EQUITY> 192,387
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<TOTAL-REVENUES> 23,258
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<TOTAL-COSTS> 16,197
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