NEXT LEVEL COMMUNICATIONS INC, DEF 14A, 2000-04-26

NEXT LEVEL COMMUNICATIONS INC
DEF 14A, 2000-04-26
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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<PAGE> 1

SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12

Next Level Communications, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

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(2) Aggregate number of securities to which transaction applies:

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):

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(4) Proposed maximum aggregate value of transaction:

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(5) Total fee paid:

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[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

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(2) Form, Schedule or Registration Statement No.:

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(3) Filing Party:

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(4) Date Filed:

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<PAGE> 2

NEXT LEVEL COMMUNICATIONS, INC.
6085 STATE FARM DRIVE
ROHNERT PARK, CALIFORNIA 94928
------------------------

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Our Stockholders:

NOTICE IS HEREBY GIVEN that the annual meeting of the stockholders of Next
Level Communications, Inc., a Delaware corporation, has been called by our board
of directors, to be held at the DoubleTree Hotel of Sonoma County located at 1
Doubletree Drive, Rohnert Park, California on May 25, 2000 at 9:00 a.m., local
time.

The purpose of the meeting is to consider and act on the following:

1. To elect three directors to serve for a term of three years and until
their successors are duly elected and qualified;

2. To approve an amendment to our 1999 Equity Incentive Plan which will
increase the number of shares available for issuance under that plan;

3. To ratify the appointment of Deloitte & Touche LLP as our independent
auditors for our current fiscal year; and

4. To transact such other business as may properly come before the meeting
and any adjournment or postponement thereof.

Our stockholders of record at the close of business on April 7, 2000 are
entitled to vote at the annual meeting and any adjournment or postponement
thereof. Since the majority of our outstanding shares must be represented at the
meeting to constitute a quorum, all stockholders are urged either to attend the
annual meeting or to vote by proxy.

Whether or not you expect to attend the annual meeting in person, please
complete, date, sign and promptly return the accompanying proxy card in the
enclosed postage-prepaid envelope.

BY ORDER OF THE BOARD OF DIRECTORS

/s/ Keith A. Zar
Keith A. Zar
Secretary

Rohnert Park, California
April 26, 2000

IMPORTANT

WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, PLEASE SIGN AND
RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE. IF YOU ATTEND THE MEETING AND SO DESIRE, YOU MAY
WITHDRAW YOUR PROXY AND VOTE IN PERSON. THANK YOU FOR ACTING PROMPTLY.
<PAGE> 3

NEXT LEVEL COMMUNICATIONS, INC.
6085 STATE FARM DRIVE
ROHNERT PARK, CALIFORNIA 94928
------------------------

PROXY STATEMENT
------------------------

GENERAL INFORMATION

GENERAL

The enclosed proxy is solicited on behalf of the board of directors of Next
Level Communications, Inc., for use at our annual meeting of stockholders to be
held on May 25, 2000, at 9:00 a.m., local time, or at any adjournment or
postponement thereof, for the purposes set forth in this proxy statement and in
the accompanying notice of annual meeting of stockholders. The annual meeting
will be held at the DoubleTree Hotel of Sonoma County located at 1 Doubletree
Drive, Rohnert Park, California 94928. Only holders of record of our common
stock at the close of business on April 7, 2000, which is the record date, will
be entitled to vote at the annual meeting.

REVOCABILITY OF PROXIES

Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use either (1) by delivering to our corporate
secretary a written notice of revocation or a duly executed proxy bearing a
later date or (2) by attending the annual meeting and voting in person.

RECORD DATE, VOTING AND SOLICITATION

We are first mailing these proxy solicitation materials on or about April
25, 2000, to the holders of our common stock on the record date, who are
entitled to notice of and to vote at the annual meeting. Each share of common
stock entitles its holder to one vote on matters to be acted upon at the annual
meeting. At the record date, 79,780,133 shares of our common stock were issued
and outstanding.

Votes cast by proxy or in person at the annual meeting will be tabulated by
the inspector of elections. The inspector of elections will also determine
whether or not a quorum is present. In general, Delaware law provides that a
quorum consists of a majority of the shares entitled to vote and present in
person or represented by proxy. The inspector of elections will treat
abstentions and broker non-votes as shares that are present and entitled to vote
for purposes of determining the presence of a quorum. Directors will be elected
by a plurality of the votes cast that are present in person or represented by
proxy. Abstentions, withheld votes and broker non-votes will not effect the
election of directors. All other proposals require the favorable vote of a
majority of the votes present and entitled to vote on the particular proposal.
Abstentions will have the same effect as votes against such a proposal. Broker
non-votes will not be counted as votes for or against such proposal and will not
be included in counting the number of votes necessary for approval of the
proposal. Any proxy which is returned using the form of proxy enclosed and which
is not marked as to a particular item will be voted for the election of
directors, for the approval of the amendment of our Equity Incentive Plan, for
ratification of the appointment of the designated independent auditors and as
the proxy holders deem advisable on other matters that may come before the
annual meeting, as the case may be, with respect to the item not marked.

The cost of soliciting proxies will be borne by us. We have retained
MacKenzie Partners to assist in the proxy solicitation for a fee of $3,000 plus
expenses. In addition, we may reimburse brokerage firms and other persons
representing beneficial owners of shares for their expenses in forwarding
solicitation materials to such beneficial owners. Proxies may also be solicited
by certain of our directors, officers and regular employees, without additional
compensation, personally or by telephone.
<PAGE> 4

PROPOSAL NO. 1: ELECTION OF DIRECTORS

BOARD OF DIRECTORS

Our board of directors is divided into three classes. Class I consists of
three directors who are serving a term expiring at this annual meeting. Class II
consists of three directors who are serving a term expiring at the annual
meeting of stockholders to be held in 2001. Class III consists of three
directors who are serving a term expiring at the annual meeting of stockholders
to be held in 2002. In each case, a director serves for the designated term and
until his or her respective successor is duly elected and qualified.

The following table sets forth certain information with respect to the
directors of the Company as of April 14, 2000:

<TABLE>
<CAPTION>
NAME OF DIRECTOR AGE PRINCIPLE OCCUPATION DIRECTOR SINCE CLASS
---------------- --- -------------------- -------------- -----
<S> <C> <C> <C> <C>
Peter W. Keeler... 45 Chief Executive Officer, President and Chairman 1999 III
of the Board
Lynn Forester..... 45 President and Chief Executive Officer, FirstMark 1999 II
Holdings, Inc.
Ferdinand C. 55 Executive Vice President and President of 2000 I
Kuznik.......... Operations, Motorola Europe, Middle East and
Africa
Paul S. 45 President, Spencer Trask Media and 1999 II
Latchford....... Communications Group
John McCartney.... 47 Deputy Chairman, Datatec, Ltd. 1999 I
Scott Poteracki... 46 Corporate Vice President and Director of 2000 III
Finance, Internet and Networking Group,
Motorola, Inc.
Dennis Rheault.... 43 Vice President and Director of Strategy, 2000 II
Communications Enterprise, Motorola, Inc.
Richard Severns... 54 Senior Vice President and Director of Finance, 2000 I
Communications Enterprise, Motorola, Inc.
Richard C. 55 Corporate Vice President and Director, Business 1999 III
Smith........... Development, Motorola, Inc.
</TABLE>

Peter W. Keeler is one of our co-founders and has served as our Chief
Executive Officer from July 1994 to the present and served as our co-President
from July 1994 to June 1999. Mr. Keeler was appointed as Chairman of the Board
and one of our directors in August 1999. From 1988 until May 1994, Mr. Keeler
served as Vice President of Business Development for Optilink/DSC, a
telecommunications equipment company. Prior to that, Mr. Keeler held various
marketing and international business positions for the 3M Company.

Lynn Forester has been one of our directors since November 1999. From
February 1995 to January 2000, Ms. Forester was a director of General Instrument
and its predecessors. Ms. Forester has been President and Chief Executive
Officer of FirstMark Holdings, Inc., a telecommunications company, since 1984
and since June 1998 has served as Co-Chief Executive Officer of FirstMark
Communications International, LLC, a telecommunications company. From 1989 to
December 1994, Ms. Forester was Chairman and Chief Executive Officer of TPI
Communications International, Inc., a radio common carrier and paging company.
Ms. Forester is Vice Chairman of the Corporate Commission on Educational
Technology.

Ferdinand C. Kuznik has been one of our directors since January 2000. Mr.
Kuznik joined Motorola in 1990 and has held various positions including his
current position of Executive Vice President and President of Motorola's
operations in Europe, the Middle East and Africa.

Paul S. Latchford has been one of our directors since November 1999 and has
served as the President of the Spencer Trask Media and Communications Group, a
technology investment firm, since June 1999. From February 1997 to June 1999,
Mr. Latchford served as Principal Vice President of Global Business Development
for Bechtel Group, Inc., a telecommunications network engineering and
construction company. From February 1995 to February 1997, Mr. Latchford was
Vice President of Business Development and

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Operations for Bell Atlantic International, a telecommunications company, for
the Asia Pacific Region and Executive Director of Business Development from
March 1994 to February 1995.

John McCartney has been one of our directors since November 1999. Since
October 1998, Mr. McCartney has served as Deputy Chairman of Datatec, Ltd., a
networking and E-commerce Company. From June 1997 to March 1998, Mr. McCartney
was president of the client access business unit of 3Com Corporation, which
merged with U.S. Robotics Corporation in 1997. Mr. McCartney served on the board
of directors of U.S. Robotics Corporation from 1985 through 1997. Mr. McCartney
also served in various executive capacities at U.S. Robotics Corporation,
including as president and chief operating officer from January 1987 to June
1997. Mr. McCartney serves on the board of directors of Datatec, A.M. Castle
Corp., Quotesmith.com and Altec Lansing Technologies.

Scott Poteracki has been one of our directors since April 2000. Mr.
Poteracki is Corporate Vice President and Director of Finance of Motorola's
Internet and Networking Group (ING). Mr. Poteracki has held various financial
positions within Motorola since 1978. Prior to his employment with Motorola, Mr.
Poteracki was in public accounting with Coopers & Lybrand.

Dennis Rheault has been one of our directors since January 2000. Mr.
Rheault has served as Vice President and Director of Strategy for the
Communications Enterprise at Motorola since July 1998. From May 1997 to July
1998, Mr. Rheault served as a Vice President and Director of Corporate Strategy
at Motorola. From December 1988 to May 1997, Mr. Rheault served as a Vice
President and Director at the Boston Consulting Group.

Richard Severns has been one of our directors since January 2000. Mr.
Severns has served as Senior Vice President and Director of Finance for the
Communications Enterprise of Motorola since July 1998. From 1991 to July 1998,
he served as Senior Vice President, Director of Finance and General Manager of
Motorola's Network Services and Strategy Group for the Land Mobile Products
Sector. Mr. Severns joined Motorola in 1971 as a senior auditor.

Richard C. Smith has been one of our directors since August 1999 and was a
director of the limited partner of Next Level Communications L.P. since November
1996. Since January 2000, Mr. Smith has been the Corporate Vice President and
Director, Business Development, Motorola, Inc. From April 1998 to January 2000,
Mr. Smith was Executive Vice President of General Instrument. Mr. Smith was Vice
President, Business Development of General Instrument from July 1997 to April
1998. In addition, Mr. Smith was the Treasurer of General Instrument and its
predecessors from September 1991 until May 1999. Mr. Smith held various
positions with General Instrument and its predecessors since April 1983.

There are no family relationships among our directors or executive
officers.

NOMINEES

Three directors are to be elected at this annual meeting. Our board of
directors has nominated the three current members of our board constituting
Class I to be re-elected and to serve a three-year term expiring at our annual
meeting of stockholders to be held in 2003. Unless otherwise instructed, the
proxy holders will vote the proxies received by them for the nominees named
below, regardless of whether any other names are placed in nomination by anyone
other than one of the proxy holders. In the event that any such nominee is
unable or declines to serve as a director at the time of the annual meeting, the
proxy holders will vote in their discretion for a substitute nominee. It is not
expected that any nominee will be unable or will decline to serve as a director.
The term of office of each person elected as a director will continue until his
term expires and until his successor has been elected and qualified. The
nominees are:

- Ferdinand C. Kuznik

- John McCartney

- Richard Severns

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<PAGE> 6

BOARD MEETINGS AND COMMITTEES

Our board of directors held a total of two meetings during the year ended
December 31, 1999. Our board of directors has an audit committee and a
compensation committee. It does not have a nominating committee or a committee
performing the functions of a nominating committee.

The audit committee consists of Mr. Latchford and Mr. McCartney, both of
whom are outside directors, and did not hold any meetings during the year ended
December 31, 1999. The audit committee approves our independent auditors,
reviews the results and scope of annual audits and other accounting related
services and evaluates our internal controls.

The compensation committee consists of Ms. Forester, Mr. McCartney, Mr.
Severns and Mr. Smith, all of whom are outside directors, and held two meetings
during the year ended December 31, 1999. The compensation committee makes
recommendations to the board of directors in connection with our stock option
plans and matters of compensation, including determining the compensation of our
executive officers, except that a subcommittee consisting of Ms. Forester and
Mr. McCartney make recommendations as to matters subject to Section 162(m) of
the Internal Revenue Code.

None of the incumbent directors attended fewer than 75% of the aggregate
number of meetings of the board of directors and of the committees upon which
such director served during 1999.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No interlocking relationship exists between our board of directors or our
compensation committee and the board of directors or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past. Mr. Kuznik, Mr. Poteracki, Mr. Rheault, Mr. Severns and Mr. Smith are
affiliated with Motorola, and Mrs. Forester and Mr. Smith have been affiliated
with General Instrument; Motorola though General Instrument holds a majority of
our common stock. See "Certain Relationships and Related Party Transactions."

DIRECTOR COMPENSATION

We pay our non-employee directors who are not employees of Motorola,
General Instrument or their respective affiliates a retainer of $20,000 per
year. In addition, we pay them a fee of $1,500 for each meeting of the board of
directors or a board committee that they attend. Non-employee directors
participate in our 1999 Equity Incentive Plan, pursuant to which such directors
are automatically granted options to purchase shares of our common stock on the
terms and conditions set forth in that plan. During 1999, in accordance with
that plan and prior to the consummation of our initial public offering, Ms.
Forester, Mr. Latchford and Mr. McCartney each were granted options to purchase
20,000 shares of our common stock at an exercise price of $11 per share.

RECOMMENDATION OF THE BOARD OF DIRECTORS

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL OF THE NOMINEES LISTED
ABOVE.

PROPOSAL NO. 2: APPROVAL OF AMENDMENT TO THE 1999 EQUITY INCENTIVE PLAN

Our board of directors has approved and recommends that you approve an
amendment to the 1999 Equity Incentive Plan which would increase the number of
shares of our common stock authorized for the grant awards under that plan.

Our board of directors believes that stock options and other equity
incentives provide an important incentive in attracting and retaining our key
employees and associates and wants to ensure that there are sufficient shares
authorized to provide appropriate equity incentives. As of April 7, 2000, there
were outstanding options to purchase 3,112,500 shares under the 1999 Equity
Incentive Plan and 1,539,244 shares available for the grant of future awards. In
order to provide our directors and key employees with appropriate
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equity incentives our board of directors has recommended an amendment of the
1999 Equity Incentive Plan to authorize a total of 7,900,000 shares of our
common stock for the grant of options, which represents an increase of 3,900,000
shares of our common stock authorized for issuance under that plan.

DESCRIPTION OF THE 1999 EQUITY INCENTIVE PLAN

Our board of directors adopted the 1999 Equity Incentive Plan on October
10, 1999. Our stockholders also approved this plan. We have reserved 4,000,000
shares of our common stock for issuance under the 1999 Equity Incentive Plan,
and as of April 13, 2000, we had granted 3,112,500 future awards under the 1999
Equity Incentive Plan. In general, if options or shares awarded under the 1999
Equity Incentive Plan or our 1999 Stock Plan are forfeited, then those options
or shares will again become available for awards under the 1999 Equity Incentive
Plan.

The compensation committee of our board of directors administers the 1999
Equity Incentive Plan. The committee has the complete discretion to make all
decisions relating to the interpretation and operation of the 1999 Equity
Incentive Plan. The committee has the discretion to determine who will receive
an award, what type of award it will be, how many shares will be covered by the
award, what the vesting requirements will be, if any, and what the other
features and conditions of each award will be. The compensation committee may
also reprice outstanding options and modify outstanding awards in other ways.

The following groups of individuals are eligible to participate in the 1999
Equity Incentive Plan:

- employees;

- members of our board of directors, other than board members who are our
employees or board members who are employees of Motorola, General
Instrument or their respective affiliates; and

- consultants.

The 1999 Equity Incentive Plan provides for the following types of awards:

- options to purchase shares of our common stock;

- stock appreciation rights;

- restricted shares of our common stock; and

- stock units, which are sometimes called phantom shares.

Options may be incentive stock options or nonstatutory stock options. An
optionee who exercises an incentive stock option may qualify for favorable tax
treatment under Section 422 of the Internal Revenue Code of 1986. On the other
hand, nonstatutory stock options do not qualify for this favorable tax
treatment. The exercise price for all options granted under the 1999 Equity
Incentive Plan may not be less than 100% of the fair market value of our common
stock on the option grant date. Optionees may pay the exercise price by using:

- cash;

- shares of common stock that the optionee already owns;

- an immediate sale of the option shares through a broker designated by us;
or

- a loan from a broker designated by us, secured by the option shares.

Options and stock appreciation rights vest at the time or times determined
by the compensation committee. In most cases, our options will vest over the
four-year period following the date of grant. Options and stock appreciation
rights generally expire 10 years after they are granted, except that they
generally expire earlier if the optionee's service terminates earlier.

The 1999 Equity Incentive Plan provides that no participant may receive
options or stock appreciation rights covering more than 2,000,000 shares in the
same year, except that a newly hired employee may receive options or stock
appreciation rights covering up to 3,000,000 shares in the first year of
employment.
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<PAGE> 8

Restricted shares may be awarded under the 1999 Equity Incentive Plan in
return for:

- cash;

- a full-recourse promissory note, except that the par value of newly
issued shares must be paid in cash;

- services already provided to us; and

- in the case of treasury shares only, services to be provided to us in the
future.

Restricted shares and stock units vest at the time or times determined by
the compensation committee.

Our compensation committee may determine that an option or other award
under the 1999 Equity Incentive Plan will become fully or partially vested if we
are subject to a change in control or if a participant's employment is
terminated after a change in control. A change in control includes the
following, except that in no case does a change in control include the sale of
our stock by General Instrument or General Instrument's merger with Motorola or
any other change in control of General Instrument:

- a merger after which our own stockholders own 50% or less of the
surviving corporation or our parent company;

- a sale of all or substantially all of our assets;

- a proxy contest that results in the replacement of more than one-half of
our directors over a 24-month period; or

- an acquisition of 50% or more of our outstanding stock by any person or
group, other than General Instrument or a person related to us, such as a
holding company owned by our stockholders.

The non-employee members of our board of directors, with the exception of
non-employee directors who are employees of Motorola, General Instrument or
their respective affiliates, are eligible for automatic option grants under the
1999 Equity Incentive Plan. Each non-employee director who first joins our board
will receive an initial option for 20,000 shares of our common stock. That grant
will occur when the director takes office. The initial option will vest over the
four-year period following the date of grant.

At the time of each of our annual stockholders' meetings, beginning in
2000, each non-employee director, with the exception of non-employee directors
who are employees of Motorola, General Instrument or their respective
affiliates, who will continue to be a director after that meeting will
automatically be granted an annual option for 5,000 shares of our common stock.
However, a new non-employee director who is receiving the 20,000-share initial
option will not receive the 5,000-share annual option in the same year. The
annual options will vest one year after the date of grant. If a change in
control occurs, or if a non-employee director leaves our board because of
retirement after age 65, total disability or death, then the non-employee
director's options granted under the 1999 Equity Incentive Plan will become
fully vested.

The exercise price of each non-employee director's option will be equal to
the fair market value of our common stock on the option grant date. A director
may pay the exercise price by using cash, shares of common stock that the
director already owns, or an immediate sale of the option shares through a
broker designated by us. The non-employee directors' options have a 10-year
term, except that they expire one year after a director leaves the board, if
earlier.

Our board may amend or terminate the 1999 Equity Incentive Plan at any
time. If our board amends the plan, it does not need to ask for stockholder
approval of the amendment unless applicable law requires it. The 1999 Equity
Incentive Plan will continue in effect indefinitely, unless the board decides to
terminate the plan earlier.

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The following table provides information as to options granted under the
1999 Equity Incentive Plan during 2000, subject to stockholder approval.

NEW PLAN BENEFITS

1999 EQUITY INCENTIVE PLAN

<TABLE>
<CAPTION>
DOLLAR NUMBER
NAME AND POSITION VALUE($)(1) OF SHARES
----------------- ----------- ---------
<S> <C> <C>
Peter W. Keeler............................................. 918,750 75,000
James T. Wandrey............................................ 612,500 50,000
Thomas R. Eames............................................. 918,750 75,000
T. Murat Uraz............................................... 612,500 50,000
Executive Group............................................. 5,782,000 472,000
Non-Executive Officer Employer Group........................ 2,511,250 205,000
</TABLE>

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

(1) Based on the difference between the exercise price of the options of $80.56
(equal to the fair market value of a share of our common stock on the date
of grant) and the fair market value of a share of our common stock on April
20, 2000 ($92.81).

SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES

The following discussion is a general summary of the material federal
income tax consequences to participants in our 1999 Equity Incentive Plan. The
discussion is based on the Internal Revenue Code of 1986, as amended,
regulations thereunder, rulings and decisions now in effect, all of which are
subject to change. This summary does not discuss all aspects of federal income
taxation that may be relevant to a particular participant in light of such
participant's personal investment circumstances. In addition, state and local
income taxes are not discussed and may vary from locality to locality.

Non-Qualified Stock Options. Participants who hold non-qualified stock
options do not recognize income as a result of the grant of such options, but
normally recognize compensation taxable at ordinary income rates upon the
exercise of such options to the extent that the fair market value of the shares
of common stock on the date of the exercise of such options exceeds the option
exercise price paid. Subject to Section 162(m) of the Internal Revenue Code,
discussed below, we will be entitled to a tax deduction in an amount equal to
the amount that the participant is required to include in ordinary income at the
time of such inclusion and will be required to withhold taxes on such ordinary
income. Upon the exercise of a non-qualified stock option, the optionee's
initial tax basis for shares of our common stock acquired will be the option
exercise price paid plus the amount of ordinary income recognized by the
participant. The tax consequences resulting from the exercise of a non-qualified
stock option through the surrender of already-owned shares of our common stock
are uncertain. In published rulings, the Internal Revenue Service has taken the
position (i) that, to the extent an equivalent value of shares is acquired, the
participant will recognize no gain and the participant's basis in the shares
acquired upon such exercise will be equal to the participant's basis in the
surrendered shares, (ii) that any additional shares acquired upon such exercise
will be compensation to the participant, taxable under the rules described above
and (iii) that the participant's basis in such additional shares will be equal
to its fair market value.

Incentive Stock Options. Participants who hold incentive stock options will
not be considered to have received taxable income upon either the grant of an
incentive stock option or its exercise. Upon the sale or other taxable
disposition of shares of common stock, long-term capital gain will normally be
recognized in the full amount of the difference between the amount realized and
the option exercise price if no disposition of shares has taken place within
either (a) two years from the date of grant of the incentive stock option or (b)
one year from the date of transfer of such shares of our common stock to the
participant upon exercise. If shares of our common stock acquired upon the
exercise of an incentive stock option are sold or otherwise

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<PAGE> 10

disposed of before the end of the one-year or two-year periods referenced above,
the difference between the option exercise price and the fair market value of
the shares of the common stock on the date of the option's exercise will be
taxed as ordinary income; the balance of the gain, if any, will be taxed as
capital gain. If the optionee disposes of the shares of our common stock
acquired upon the exercise of an incentive stock option before the expiration of
the one-year or two-year periods referenced above and the amount realized is
less than the fair market value of the shares at the date of exercise, the
participant's ordinary income is limited to the excess, if any, of the amount
realized less the option exercise price paid. Subject to Section 162(m) of the
Internal Revenue Code, discussed below, we will be entitled to a tax deduction
in regard to an incentive stock option only to the extent the participant has
ordinary income upon sale or other disposition of the shares of our common
stock. The difference between the fair market value of the common stock on the
exercise date and the exercise price of an incentive stock option is deemed to
be a "tax preference" under the alternative minimum tax rules of the Internal
Revenue Code. The consequences of the application of these provisions to
individual participants may vary depending on their particular circumstances.
The tax consequences resulting from the exercise of an incentive stock option
through the surrender of already-owned shares of our common stock are uncertain.
In published rulings and proposed regulations, the Internal Revenue Service has
taken the position (i) that, subject to the discussion above, generally the
participant will recognize no income upon such stock-for-stock exercise, (ii)
that, to the extent an equivalent number of shares is acquired, the
participant's basis in the shares acquired will be equal to the participant's
basis in the surrendered shares increased by any compensation income recognized
by the participant, (iii) that the participant's basis in any additional shares
acquired upon such exercise is zero and (iv) that any sale or other disposition
of such acquired shares within the one-year or two-year periods referenced above
will be viewed as a disposition of the shares with the lowest basis first.

Stock Appreciation Rights. Participants who hold stock appreciation rights
do not recognize income as a result of a grant of a stock appreciation right.
Nonetheless, they normally recognize compensation taxable at ordinary income
rates upon exercise of the stock appreciation right equal to the amount of cash
and/or the then fair market value of any shares of common stock received.
Subject to Section 162(m) of the Internal Revenue Code, discussed below, we will
be entitled to a tax deduction in an amount equal to the amount that the
participant is required to include in ordinary income at the time of such
inclusion and will be required to withhold taxes on such ordinary income.

Stock Units. A participant who has been granted a stock unit will not
realize taxable income at the time of grant. In addition, we will not be
entitled to a deduction at that time. When an award is paid, whether in cash or
our common stock, the participant will have ordinary income, and, subject to
Section 162(m) of the Internal Revenue Code, discussed below, we will be
entitled to a corresponding deduction.

Section 162 of the Internal Revenue Code. Under Section 162(m) of the
Internal Revenue Code, income tax deductions of publicly-traded companies may be
limited to the extent total compensation, including base salary, annual bonus,
stock option exercises and non-qualified benefits paid in 1994 and thereafter
for certain executive officers exceeds $1 million (less the amount of any
"excess parachute payments" as defined in Section 280G of the Internal Revenue
Code) in any one year. However, under Section 162(m), the deduction limit does
not apply to certain "performance-based" compensation established by an
independent compensation committee which is adequately disclosed to, and
approved by, stockholders. In particular, stock options and stock appreciation
rights will satisfy the performance-based exception if the awards are made by a
qualifying compensation committee, the plan sets the maximum number of shares
that can be granted to any particular employee within a specified period and the
compensation is based solely on an increase in the stock price after the grant
date. Grants of stock options and stock appreciation rights under the 1999
Equity Incentive Plan are intended to conform to the performance-based exception
under Section 162(m).

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVING AN AMENDMENT TO OUR
1999 EQUITY INCENTIVE PLAN WHICH WILL INCREASE THE NUMBER OF SHARES AVAILABLE
FOR ISSUANCE UNDER THAT PLAN.

8
<PAGE> 11

PROPOSAL NO. 3: APPROVAL OF INDEPENDENT AUDITORS

Our board of directors has appointed the firm of Deloitte and Touche LLP,
independent auditors, to audit our financial statements for the year ending
December 31, 2000. In the event the stockholders do not ratify such appointment,
our board of directors will reconsider its selection. We expect representatives
of Deloitte & Touche LLP will be present at the annual meeting and will have the
opportunity to respond to appropriate questions and to make a statement if they
desire.

RECOMMENDATION OF THE BOARD OF DIRECTORS

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE APPROVAL
OF DELOITTE & TOUCHE LLP AS OUR INDEPENDENT AUDITORS FOR THE YEAR ENDING
DECEMBER 31, 2000.

9
<PAGE> 12

SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT

The following table sets forth the beneficial ownership of our common stock
as of April 7, 2000, as to:

- each person who is known by us to beneficially own more than five percent
of the outstanding shares of our common stock;(1)

- each our current directors;

- each of the executive officers named in the Summary Compensation Table
beginning on page 13; and

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

Unless otherwise indicated below, each person or entity named below has an
address in care of our principal executive offices.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
5% STOCKHOLDERS, DIRECTORS, OWNED(1)
NAMED EXECUTIVE OFFICERS, AND ---------------------
DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP NUMBER PERCENT
------------------------------------------- ---------- -------
<S> <C> <C>
Motorola, Inc............................................... 64,103,724 80.4%
1303 East Algonquin Road
Schaumburg, IL 60196
Spencer Trask Investors LLC(2).............................. 14,343,431 16.3%
535 Madison Avenue, 18th Floor
New York, NY 10022
Peter W. Keeler(3).......................................... 1,900,000 2.3%
Thomas R. Eames(4).......................................... 1,585,708 1.9%
Lynn Forester............................................... 10,000 *
Ferdinand C. Kuznik......................................... -- --
Paul S. Latchford........................................... 200 *
John McCartney.............................................. 7,500 *
Scott Poteracki............................................. -- --
Dennis Rheault.............................................. -- --
Charles H. Seebock(5)....................................... 116,667 *
Richard Severns............................................. -- --
Richard C. Smith............................................ 13,000 *
T. Murat Uraz(6)............................................ 182,667 *
James T. Wandrey(7)......................................... 93,000 *
All directors and officers as a group (18 persons)(8)....... 4,184,106 5.0%
</TABLE>

- ---------------
* Less than 1%

(1) Information with respect to beneficial ownership is based upon information
furnished by each director and officer or contained in filings made with the
Securities and Exchange Commission. Except as indicated in the footnotes to
this table, the stockholders named in this table have sole voting and
investment power with respect to all shares of our common stock shown as
beneficially owned by them, subject to community property laws where
applicable.

(2) Includes 8,480,102 shares of common stock subject to warrants held by
affiliates and currently exercisable. Spencer Trask Investors LLC is
beneficially owned by entities controlled by, or affiliated with, Kevin
Kimberlin and Spencer Segura.

(3) Includes 1,750,000 options currently exercisable or exercisable within 60
days.

(4) Includes 1,559,208 options currently exercisable or exercisable within 60
days. Mr. Eames has entered into an agreement with his former wife pursuant
to which she controls the exercise of this option and the disposition of the
underlying shares to the extent of 234,419 shares. Mr. Eames disclaims
beneficial ownership of such 234,419 shares.

(5) Includes 116,667 options currently exercisable or exercisable within 60
days.

(6) Includes 176,667 options currently exercisable or exercisable within 60
days.

(7) Includes 50,000 options currently exercisable or exercisable within 60 days.

(8) Includes 3,915,206 options currently exercisable or exercisable within 60
days.

10
<PAGE> 13

OUR EXECUTIVE OFFICERS

Our current executive officers are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Peter W. Keeler............... 45 Chief Executive Officer, President and Chairman of the Board
of Directors
Thomas R. Eames............... 47 Chief Technical Officer
Alvin L. Pachynski............ 60 Senior Vice President, Marketing
Charles H. Seebock............ 53 Senior Vice President and Chief Operating Officer
Frank P. Tuhy................. 56 Senior Vice President, Technology
T. Murat Uraz................. 45 Senior Vice President and Chief Engineering Officer
James T. Wandrey.............. 45 Senior Vice President, Chief Financial Officer and Treasurer
William A. Weeks.............. 37 Senior Vice President and Chief Strategic Officer
Hans L. Van Welzen............ 57 Senior Vice President, Sales
Keith A. Zar.................. 45 Senior Vice President, General Counsel and Secretary
</TABLE>

Thomas R. Eames is one of our co-founders and has served as our Chief
Technical Officer since June 1999 while also serving as our co-President from
July 1994 to June 1999. Prior to that, Mr. Eames was a founder of Optilink
Corporation, a telecommunications equipment company, which was later acquired by
DSC Corporation where he served as Senior Director in Engineering from 1987 to
May 1994. Prior to that Mr. Eames was employed by Harris Corporation, a
telecommunications company, in a variety of technical positions.

Charles H. Seebock has served as our Senior Vice President and Chief
Operating Officer since June 1999. From June 1998 to June 1999, Mr. Seebock
served as our Vice President and Chief Operating Officer. From January 1996 to
June 1998, Mr. Seebock served as our Vice President, Administration and Chief
Financial Officer. From January 1989 to November 1995, Mr. Seebock was the Vice
President Finance/MIS of the airbag business of Morton International.

James T. Wandrey has served as our Senior Vice President, Chief Financial
Officer and Treasurer since June 1999 and as our Secretary from October to
December 1999. From March 1999 to June 1999, Mr. Wandrey served as our Vice
President, Chief Financial Officer and Treasurer. Mr. Wandrey was Vice President
and Corporate Controller of Avid Technology, a multi-media software company,
from April 1997 to December 1998. From January 1995 to April 1997, Mr. Wandrey
served as Senior Director and Corporate Controller of Alcatel Network Systems.
Prior to that, Mr. Wandrey spent 11 years with the Hewlett Packard Company.

Alvin L. Pachynski has served as our Senior Vice President of Marketing
since June 1999. From August 1997 to June 1999, Mr. Pachynski served as our Vice
President of Marketing. From May 1997 to August 1997, Mr. Pachynski was our
Senior Programs Manager. Prior to that, Mr. Pachynski was a consultant to the
telecommunications industry from September 1995 to April 1997. From 1989 to
1994, Mr. Pachynski was Vice President of Marketing for Raynet Corporation, a
telecommunications equipment company.

Frank P. Tuhy has served as our Senior Vice President of Technology since
June 1999. From December 1996 to June 1999, Mr. Tuhy served as our Vice
President of Technology-East. From January 1984 to November 1996, Mr. Tuhy was
Director of Access Systems Analysis and Criteria at Bell Communications Research
(Bellcore).

11
<PAGE> 14

T. Murat Uraz has served as our Senior Vice President and Chief Engineering
Officer since June 1999. From January 1995 to June 1999, Mr. Uraz held many
positions in our Engineering Department, including Vice President of
Engineering. Prior to that, from 1993 to January 1995, Mr. Uraz was a Broadband
Engineering Project Manager at Raynet Corporation, a telecommunications
equipment company.

Hans L. Van Welzen has served as our Senior Vice President of Sales since
April 1999. Mr. Van Welzen was Senior Vice President of Sales for Siemens
Information and Communications Networks from October 1998 to March 1999. From
December 1993 to September 1998, Mr. Van Welzen was Vice President of Northeast
sales for Siemens Telecom Networks. From 1989 to 1992, Mr. Van Welzen was Vice
President of Operations for Siemens. Prior to that, Mr. Van Welzen spent 22
years with Nortel where he held a wide variety of Sales, Engineering, Operations
and Marketing positions.

William A. Weeks has served as our Senior Vice President and Chief
Strategic Officer since June 1999. From April 1996 to June 1999, Mr. Weeks
served as our Vice President, Technology-West. From February 1995 to April 1996,
Mr. Weeks served as our Senior Director of Technology. Mr. Weeks was Director of
Broadband Access Technology at U S WEST Advanced Technologies from 1992 to
February 1995. Prior to that, Mr. Weeks held various positions with Ameritech
Corp, AT&T Bell Laboratories and United Telecommunications.

Keith A. Zar has served as our Senior Vice President, General Counsel and
Secretary since January 2000. From February to December 1999, Mr. Zar was an
outside legal consultant to us. Mr. Zar was Senior Vice President of General
Instrument from October 1998 to February 1999, Senior Vice President and General
Counsel of General Instrument from April 1998 to October 1998, Vice President
and General Counsel of General Instrument from June 1997 to April 1998, and
Assistant General Counsel of General Instrument from July 1993 to June 1997.

Each executive officer serves at the sole discretion of our board of
directors.

12
<PAGE> 15

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
------------------------ COMPENSATION AWARDS
SALARY BONUS SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($) OPTIONS COMPENSATION(1)
--------------------------- ---- ------- ------- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
Peter W. Keeler...................... 1999 261,077 380,500 600,000 $5,000
Chairman of the Board, Chief 1998 250,000 125,000 -- 5,000
Executive Officer and President
James T. Wandrey..................... 1999 141,346 299,471 350,000 5,923
Senior Vice President, 1998 -- -- --
Chief Financial Officer and
Treasurer
Thomas R. Eames...................... 1999 261,077 130,538 600,000 5,000
Chief Technical Officer 1998 250,000 125,000 -- 5,000
Charles H. Seebock................... 1999 192,870 77,148 250,000 5,114
Senior Vice President, 1998 166,910 50,074 8,334 5,000
Chief Operating Officer
T. Murat Uraz........................ 1999 182,712 73,085 190,000 4,264
Senior Vice President, 1998 148,993 79,698 33,334 4,368
Chief Engineering Officer
</TABLE>

- ---------------
(1) Represents the Company's matching 401(k) contribution.

OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1999

The following tables set forth information for our named executive officers
with respect to grants of options to purchase our common stock made in the year
ended December 31, 1999 and the value of all options held by such executive
officers on December 31, 1999.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(2)
OPTIONS EMPLOYEES DURING BASE PRICE EXPIRATION ----------------------------
NAME GRANTED YEAR(1) ($/SH) DATE 5%($) 10%($)
---- ---------- ---------------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Peter W. Keeler.............. 600,000 7.4% 66.25 12/3/09 29,943,420 66,180,800
Thomas R. Eames.............. 600,000 7.4% 66.25 12/3/09 29,943,420 66,180,800
James T. Wandrey............. 200,000 2.5% 11.00 10/26/09 21,031,140 33,110,267
James T. Wandrey............. 100,000 1.2% 66.25 12/3/09 4,990,570 11,030,133
James T. Wandrey............. 50,000 0.6% 9.66 3/8/09 5,324,785 8,344,567
Charles H. Seebock........... 225,000 2.8% 11.00 10/26/09 23,660,033 37,249,050
Charles H. Seebock........... 25,000 0.3% 66.25 12/3/09 1,247,643 2,757,533
T. Murat Uraz................ 165,000 2.0% 11.00 10/26/09 17,350,691 27,315,970
T. Murat Uraz................ 25,000 0.3% 66.25 12/3/09 1,247,643 2,757,533
</TABLE>

- ---------------
(1) Based on an aggregate total of 8,134,679 options granted to employees in
1999 under our option plans.

(2) Potential realizable values are reported net of the option exercise price,
but before taxes associated with the exercise, if any. These amounts
represent certain assumed rates of appreciation only, in accordance with
regulations of the SEC. Actual gains, if any, on stock option exercises and
common stock holdings are dependent on the future performance of our common
stock and overall market conditions, as well as executives continued
employment through the vesting period. We cannot assure that the amounts
reflected would be realized.

13
<PAGE> 16

AGGREGATED OPTION EXERCISES IN THE YEAR ENDED
DECEMBER 31, 1999 AND YEAR-END OPTION VALUES

The following table sets forth information concerning the shares acquired
and the value realized upon the exercise of stock options during 1999 and the
year-end number and value of unexercised options with respect to each of our
named executive officers. No stock appreciation rights were exercised by our
named executive officers in fiscal year 1999 or were outstanding at the end of
that year.

Some of our options were granted in tandem with options to purchase shares
of the common stock of General Instrument, which are now options to purchase
Motorola common stock. If all or a portion of one of our options are exercised,
all or a portion of the General Instrument options are canceled, and if all or a
portion of the General Instrument options are exercised, all or a portion of our
options are canceled. The number of unexercised options set forth in the table
does not include options to purchase shares of General Instrument common stock.

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE DECEMBER 31, 1999 DECEMBER 31, 1999(1)
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Peter W. Keeler.............. -- -- 1,750,000/ 600,000 $ 129,561,250/ 5,175,000
Thomas R. Eames.............. -- -- 1,559,208/ 600,000 116,745,724/ 5,175,000
T. Murat Uraz................ -- -- 176,667/ 190,000 12,862,846/ 10,755,000
Charles H. Seebock........... -- -- 116,667/ 250,000 8,563,696/ 14,587,500
James T. Wandrey............. -- -- 50,000/ 300,000 3,260,750/ 13,637,500
</TABLE>

- ---------------
(1) The fair market value our common stock (as reported on the Nasdaq National
Market) at the close of business on December 31, 1999 was $74.875.

EMPLOYEE STOCK PLANS

1999 STOCK PLAN

Our board of directors adopted our 1999 Stock Plan effective October 1,
1999. Our stockholder also approved this plan. We have reserved 6,000,000 shares
of our common stock for grants under the 1999 Stock Plan. If options or shares
awarded under the 1999 Stock Plan are forfeited, then those options or shares
will become available for new awards. We have granted options covering 5,393,854
shares of our common stock under the 1999 Stock Plan. These options have an
exercise price equal to $11.00 per share, and they will become exercisable with
respect to 25% of the shares after 12 months of service and the remaining 75% of
the shares in equal monthly installments over the next 36 months of service. We
will make no additional awards under the 1999 Stock Plan.

1999 EQUITY INCENTIVE PLAN

For a description of this plan, see Proposal No. 2 above.

1999 EMPLOYEE STOCK PURCHASE PLAN

Our board of directors adopted our 1999 Employee Stock Purchase Plan on
October 10, 1999. Our stockholder also approved this plan. Our 1999 Employee
Stock Purchase Plan is intended to qualify under Section 423 of the Internal
Revenue Code. We have reserved 1,000,000 shares of our common stock for issuance
under the plan. On November 1 of each year, starting with the year 2000, the
number of shares in the reserve will automatically be increased by 1,000,000
shares, 1% of the shares then outstanding or the number determined by our board
of directors, whichever is lowest. The plan will be administered by the
compensation committee of our board of directors.

All of our employees are eligible to participate. Eligible employees may
begin participating in the 1999 Employee Stock Purchase Plan at the start of any
offering period. Each offering period lasts 24 months.

14
<PAGE> 17

Overlapping offering periods start on May 1 and November 1 of each year.
However, the first offering period will start on the effective date of this
offering and end on October 31, 2001.

Our 1999 Employee Stock Purchase Plan permits each eligible employee to
purchase common stock through payroll deductions. Each employee's payroll
deductions may not exceed 20% of the employee's cash compensation. Purchases of
our common stock will occur on April 30 and October 31 of each year. Each
participant may purchase up to 1,500 shares on any purchase date. But the value
of the shares purchased in any calendar year (measured as of the beginning of
the offering period) may not exceed $25,000.

The price of each share of common stock purchased under our 1999 Employee
Stock Purchase Plan will be 85% of the lower of:

- the fair market value per share of common stock on the date immediately
before the first day of the applicable offering period; or

- the fair market value per share of common stock on the purchase date.

In the case of the first offering period, the price per share under the plan
will be 85% of the lower of:

- the price per share at the initial public offering; or

- the fair market value per share of common stock on the purchase date.

Employees may end their participation in the 1999 Employee Stock Purchase
Plan at any time. Participation ends automatically upon termination of
employment with us. If a change in control occurs, our 1999 Employee Stock
Purchase Plan will end and shares will be purchased with the payroll deductions
accumulated to date by participating employees, unless the plan is assumed by
the surviving corporation or its parent. Our board of directors may amend or
terminate the 1999 Employee Stock Purchase Plan at any time. If our board
increases the number of shares of common stock reserved for issuance under the
plan (except for the automatic increases described above), it must seek the
approval of our stockholders.

COMPENSATION COMMITTEE REPORT

The following is a report of the compensation committee of our board of
directors describing the compensation policies applicable to our executive
officers during the year ended December 31, 1999. The committee recommends
salaries, incentives and other forms of compensation for our directors, officers
and other employees, administers our various incentive compensation and benefit
plans, including stock plans, and recommends policies relating to such incentive
compensation and benefit plans. Executive officers who are also directors have
not participated in deliberations or decisions involving their own compensation.

REPORT OF NEXT LEVEL COMMUNICATIONS' COMPENSATION COMMITTEE REPORT OF
THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION

Four members of the Board of Directors, Lynn Forester, John McCartney,
Richard Severns and Richard C. Smith, serve as the Compensation Committee of the
Board. The Compensation Committee reviews, recommends and approves changes to
Next Level's compensation policies and benefits programs, administers the 1999
Equity Incentive Plan, including approving stock option grants, and otherwise
seeks to ensure that Next Level's compensation philosophy is properly
implemented and is consistent with Next Level's best interests. Matters subject
to the provisions of Internal Revenue Code 162(m) as well as grants of equity
compensation awards to individuals subject to Section 16 of the Securities
Exchange Act of 1934, however, are independently reviewed and approved by a
compensation subcommittee consisting of Ms. Forester and Mr. McCartney.

The 1999 compensation levels for Next Level's executive officers generally
were determined on an individual basis at the time of hiring, which occurred in
each case, except one, prior to Next Level's initial public offering in November
1999 and prior to the formation of the Compensation Committee. For this reason,

15
<PAGE> 18

the Compensation Committee did not undertake a general assessment of executive
compensation levels until the determination of executive compensation for 2000.

COMPENSATION PHILOSOPHY

The Compensation Committee's goal is to provide a competitive compensation
package based on a review of publicly available information about the
compensation paid to similarly situated executives. The Compensation Committee
believes that a substantial portion of compensation should be tied to the
attainment of long- and short-term objectives. To achieve these compensation
objectives, the Compensation Committee has developed a compensation philosophy
for executive officers consisting of base salary, annual incentive awards and
equity incentives.

Components of Executive Compensation

Base Salary. The Compensation Committee annually reviews each executive
officer's salary. In determining the appropriate salary, the Compensation
Committee considers, among other factors, the officer's scope of responsibility,
prior experience and past accomplishments. The Compensation Committee also
compares base salaries and salary ranges of similar positions in other companies
in relevant markets defined by company size, industry and location. Executive,
technical and other highly-compensated positions are valued in the national
market using data developed by nationally recognized compensation consulting
firms. Base salary for these positions is targeted at the median of a peer group
of publicly traded companies with similar products, markets and other comparable
characteristics. The peer group is reviewed regularly and generally established
on the basis of market capitalization value. The published compensation data
used by the Compensation Committee to establish base salary ranges, however, are
not necessarily drawn from the same peer group of companies included in the
Stock Performance Graph below.

The Compensation Committee annually recommends to the Board of Directors
adjustments to salary ranges and actual salaries, taking into consideration
position value, market pricing, operating results, individual performance and
other factors. For 2000, the Compensation Committee incorporated the national
consultant's base salary midpoint recommendations.

Annual Incentive Awards. Annual incentive awards, in the form of cash
payments, are designed to achieve specific short-term results and to further
long-term objectives. Financial and other objectives and program participants
are set at the beginning of each year. The process involves the Board of
Directors, the Compensation Committee, the Chief Executive Officer and program
participants. Goals and objectives are established for each program participant
at the beginning of the year. Performance is measured at year-end against these
pre-established objectives and annual incentive awards are determined based on
performance.

The Compensation Committee annually reviews potential incentive awards for
executive officers as a percentage of base salary and recommends adjustments to
the Board of Directors, based upon a review of Company results and performance
versus objectives and personal performance of participants versus objectives.
Base salary and annual incentive awards (cash compensation) are generally
targeted at the 50th percentile of the peer group of companies discussed above.
In December 1999, the Board of Directors approved the Compensation Committee's
recommendations to award annual incentive awards for 1999 performance due to
industry conditions, Next Level's current cash position and stockholder value.

Long-Term Equity Incentive Awards. The Compensation Committee emphasizes
the award of stock options and believes that in the highly competitive, emerging
markets in which Next Level operates, equity-based compensation provides the
greatest incentive for outstanding performance and the greatest alignment of
management and stockholder long-term interests. As a result, the Compensation
Committee has relied on long-term equity compensation as a substantial means of
compensating and motivating Next Level's executive officers. It is the
Compensation Committee's practice to set option exercise prices at not less than
100% of the stock's fair market value on the date of grant. Thus, the value of
the stockholders' investment in Next Level must appreciate before an optionee
receives any financial benefit from the option. Options are generally granted
for a term of ten years. Options granted to Next Level's executive officers
generally provide that they

16
<PAGE> 19

are not exercisable until one year after the date of grant, at which time they
become exercisable on a cumulative basis at a maximum annual rate of 25% of the
total number of shares underlying the option grant.

Participation in Next Level's 1999 Equity Incentive Plan is available to
employees, outside directors and consultants. The Compensation Committee
annually reviews participants and potential award ranges considering
responsibility, authority and potential impact on Next Level. The opportunity
range for each participant is based on guidelines developed by nationally
recognized compensation consultants. At year end, the Compensation Committee
reviews Next Level's condition and performance and individual performance versus
long-term goals and determines awards for eligible participants. Awards may be
in the form of stock options, restricted stock, stock appreciation rights and
stock units, which are sometimes called "phantom shares," although to date all
awards have been in the form of stock options. In April 2000, the Compensation
Committee determined that it was in Next Level's best interest to grant stock
options to all employees on an ongoing basis as a means of retaining and
motivating individuals. This also allowed Next Level's employees to develop an
ownership position, thus aligning them with the long-term goals of both Next
Level and its other stockholders.

Because of Next Level's rapid personnel growth, the Compensation Committee
and the Board of Directors have approved an amendment to increase by an
aggregate of 3,900,000 shares the number of shares of Common Stock that may be
issued pursuant to the exercise of options granted under the 1999 Equity
Incentive Plan. Next Level is seeking approval of this amendment by the
stockholders at the Annual Meeting. For more information, please see the section
entitled "Proposal No. 2: Approval of Amendment to the 1999 Equity Incentive
Plan," beginning on page 4 of this proxy statement.

Chief Executive Officer Compensation. The Compensation Committee annually
reviews the Chief Executive Officer's performance and compensation and
recommends changes as appropriate to the Board of Directors. In its review, the
Compensation Committee considers Next Level's condition, operating results,
performance versus short-term and long-term objectives, economic environment,
industry conditions and increased stockholder value. The Compensation Committee
also considers the Chief Executive Officer's performance against short-term and
long-term objectives, compensation versus peers and other factors. In view of
industry conditions and Next Level's cash position, it was determined that
annual incentive awards would be paid to management for 1999 performance. As a
result, an annual incentive award payment in the amount of $380,500 was approved
for Mr. Keeler.

In December 1999, based on the long-term incentive recommendations of a
national consulting firm, the Compensation Committee recommended, and the Board
of Directors approved, an award of 600,000 stock options to Mr. Keeler.

Policy on Deductibility of Compensation

Section 162(m) of the U.S. Internal Revenue Code limits the tax
deductibility by a corporation of compensation in excess of $1 million paid to
any of its five most highly compensated executive officers. However,
compensation which qualifies as "performance-based" is excluded from the $1
million limit if, among other requirements, the compensation is payable only
upon attainment of pre-established, objective performance goals under a plan
approved by stockholders.

17
<PAGE> 20

The Compensation Committee does not presently expect total cash
compensation payable for salaries to exceed the $1 million limit for any
individual executive. Having considered the requirements of Section 162(m), the
Compensation Committee believes that stock option grants to date meet the
requirement that such grants be "performance based" and are, therefore, exempt
from the limitations on deductibility. The Compensation Committee will continue
to monitor the compensation levels potentially payable under its cash
compensation programs, but intends to retain the flexibility necessary to
provide total cash compensation in line with competitive practice, Next Level's
compensation philosophy and Next Level's best interests.

COMPENSATION COMMITTEE
Lynn Forester
John McCartney
Richard Severns
Richard C. Smith

SUBMITTED BY THE COMPENSATION
COMMITTEE OF THE BOARD OF DIRECTORS

18
<PAGE> 21

STOCK PERFORMANCE GRAPHS

Set forth below is a comparison of the total stockholder return on the
Company's Common Stock for the period beginning November 10, 1999 (date of our
initial public offering) and ending December 31, 1999 with the total stockholder
return for the same period for the Standard & Poor's 500 Index (S&P 500) and the
Standard & Poors High Technology Composite Index (the "Peer Group"). The total
stockholder return reflects the change in share price during the period,
assuming an investment of $100.00 on November 10, 1999 plus the reinvestment of
dividends, if any. No dividends were paid on the Common Stock during the period
shown. The stock price performance shown below is not necessarily indicative of
future stock price performance.

COMPARISON OF NEXT LEVEL COMMUNICATIONS, INC.,
THE S&P 500 AND THE COMPANY'S PEER GROUP

PERFORMANCE GRAPH

19
<PAGE> 22

The following chart details Next Level Communications' closing prices for
the period beginning November 10, 1999 (date of our initial public offering),
through December 31, 1999.

NXTV DAILY CLOSING PRICE

PERFORMANCE GRAPH

20
<PAGE> 23

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Next Level Communications, a subsidiary of General Instrument, was the
limited partner and Spencer Trask was the general partner of Next Level
Communications L.P., with the General Instrument subsidiary holding a 90.4%
limited partnership interest and Spencer Trask holding a 9.6% general
partnership interest. General Instrument also held a $75.0 million principal
amount promissory note of Next Level Communications L.P., which, together with
accrued interest thereon, was convertible into shares of common stock of the
successor corporation to the partnership. Affiliates of Spencer Trask also have
an option to acquire additional shares of that successor corporation.

Immediately prior to our initial public offering, General Instrument
contributed its $75 million note and accrued interest thereon to us, and Next
Level Communications L.P. and the General Instrument subsidiary, Next Level
Communications, merged into us. As a result, General Instrument received
64,103,724 shares of common stock and Spencer Trask received 5,863,329 shares of
common stock. These shares represent approximately 89.2% of the outstanding
common stock. Also pursuant to this merger, the option held by Spencer Trask
affiliates became warrants to acquire from us 8,480,102 shares of common stock
at an exercise price of $10.38 per share. The warrants are currently exercisable
and expire on January 13, 2003. In lieu of paying the exercise price in cash,
the holders may elect to receive, upon the exercise of a warrant, the number of
shares subject to the warrant multiplied by a fraction, the numerator of which
is the market price per share less the exercise price and the denominator of
which is the market price per share.

On January 5, 2000, General Instrument consummated its merger with
Motorola. Consequently, Motorola is able to exercise a majority of our total
voting power and has the ability to control our board of directors and all
matters relating to our business and affairs. We do not know whether Motorola's
plans for our business and affairs will be different than our existing plans and
whether any changes that may be implemented under Motorola's control will be
beneficial or detrimental to our other stockholders.

Motorola and Spencer Trask have advised us that they currently intend to
hold all of their shares. However, they are not subject to any contractual
obligation to retain any of their shares, except that they have agreed not to
sell or otherwise dispose of any shares for 180 days after our initial public
offering without the prior written consent of Credit Suisse First Boston
Corporation. As a result, we cannot assure you as to how long Motorola or
Spencer Trask will maintain their beneficial ownership of our common stock.

It is possible that Motorola could be in a position involving a conflict of
interest with us. In addition, individuals who are officers or directors of both
our principal stockholder and us may have fiduciary duties to both our principal
stockholder and us. For example, a conflict may arise if our principal
stockholder were to engage in activities or pursue corporate opportunities that
may overlap with our business. Our certificate of incorporation contains
provisions intended to protect our principal stockholder and these individuals
in these situations.

Prior to December 31, 1999, General Instrument leased one of the buildings
at our Rohnert Park offices from a Delaware realty trust set up specifically to
permit the purchase and lease of the facility. To purchase the land and
construct the facility, this trust obtained loans from several lenders which
were guaranteed by General Instrument The lease provided for a purchase option.
On December 30, 1999, the Company exercised such option, paying $24.9 million to
acquire the land and building.

As a condition of our contract with Bell Atlantic, we are required to
maintain up to a $75 million performance bond or irrevocable letter of credit.
This obligation, currently $25 million, was guaranteed by General Instrument
until March 2000.

21
<PAGE> 24

CORPORATE AND INTERCOMPANY AGREEMENT

In November 1999, we entered into a corporate and intercompany agreement
with General Instrument under which we granted to General Instrument and its
affiliates a continuing option to purchase additional shares of common stock or
shares of non-voting capital stock. If we issue any additional equity
securities, General Instrument and its affiliates may exercise this option to
purchase:

- shares of common stock to the extent necessary for them to maintain their
then-existing percentage of the total voting power; and

- shares of nonvoting capital stock to the extent necessary to own 80% of
any class of non-voting capital stock which may be outstanding.

The purchase price of the shares of common stock is the fair market value
of the common stock. The purchase price of non-voting capital stock will be the
price at which third parties may purchase this stock. The stock option expires
if General Instrument and its affiliates beneficially own less than 30% of the
outstanding common stock.

Under this agreement, we have agreed to obtain a release of General
Instrument from its Bell Atlantic guaranty as promptly as practicable.

This agreement will also provide that, for as long as General Instrument
and its affiliates beneficially own a majority of the outstanding common stock,
we may not take any action which may be reasonably anticipated to result in a
violation by them of:

- any law or regulation, including the Internal Revenue Code or the
Employee Retirement Income Security Act;

- their certificates of incorporation or by-laws;

- any credit agreement or other material instrument binding upon them or
any of their assets; or

- any judgment, order or decree of any governmental authority having
jurisdiction over them or any of their assets.

This agreement also provides that the parties will provide reasonable
cooperation with respect to their tax filings and any tax audits. Under this
agreement, we will also indemnify General Instrument and its affiliates against
any lawsuits or other claims arising out of any of our or our predecessors'
activities or omissions before and after our initial public offering.

Under this agreement, we and our board of directors also appointed
additional directors nominated by Motorola on January 5, 2000.

This agreement also provides that we will enter into a similar agreement
for the benefit of any transferee or group of related transferees of General
Instrument which is unaffiliated with General Instrument of more than a majority
of the outstanding shares of common stock in a single transaction or a group of
related transactions.

CROSS LICENSE AGREEMENT

In November 1999, we entered into a cross license agreement with General
Instrument. Under this agreement, General Instrument granted to us a
nonexclusive, perpetual, royalty free, worldwide license under all patent
applications and patents owned by General Instrument and any future patents
issued from these General Instrument patents and patent applications, to make
our NLevel(3) product or related switched digital video network equipment and
software. This grant did not include patent claims covering the implementations,
methods or devices primarily used or to be used by General Instrument. Also
under this agreement, we granted to General Instrument and its affiliates,
including Motorola, a nonexclusive, perpetual, royalty free, worldwide license
under all patent applications and patents owned by us and filed prior to our
initial public offering and any future patents issued from these patents and
patent applications to make digital cable subscriber terminals, satellite and
wireless subscriber terminals, cable modems, HFC telephony and related
22
<PAGE> 25

headend, uplink, transmission or other network equipment and software. This
grant did not include patent claims covering the implementations, methods or
devices primarily used or to be used by us. We and General Instrument each also
licensed to the other the right to use confidential, technical and other
information in each other's possession as of the completion of our initial
public offering. These licenses do not include the right to sublicense to any
third parties. This agreement permits General Instrument and us to transfer
their or our licenses pursuant to a sale of their or our respective entire
business, a sale of an entire business unit that benefits from the license or to
any of General Instrument's or our respective affiliates.

REGISTRATION RIGHTS AGREEMENT

In November 1999, we entered into a registration rights agreement with
General Instrument and Spencer Trask. Under this agreement, we granted to these
stockholders and their affiliates the right to request that we use our best
efforts to register their shares of our common stock under federal and state
securities laws so that they may sell or dispose of their shares in accordance
with these laws. So long as General Instrument and its affiliates own 30% of our
outstanding common stock, they will not be limited in the number of times they
may make that request. After their ownership declines below that level, they
will be able to cause us to effect up to four registrations of their shares.
Spencer Trask and its affiliates will be able to cause us to effect up to three
registrations of their shares. Under customary "piggy-back" registration rights,
General Instrument, Spencer Trask and their affiliates will also be entitled to
include their shares in all registrations of common stock we make, either for a
sale by us or any of our stockholders, subject to customary exceptions. We will
pay for all out-of-pocket expenses relating to these registrations and indemnify
General Instrument, Spencer Trask and their affiliates against liabilities under
securities laws. General Instrument, Spencer Trask and their affiliates may
generally assign these registration rights to transferees of their shares. This
agreement also provides that we will enter into a similar agreement for the
benefit of any Majority Transferee, as defined in the agreement.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934 requires our directors
and executive officers, and persons who own more than ten percent of a
registered class of our equity securities to file with the SEC initial reports
of ownership and reports of changes in ownership of our common stock and other
equity securities. Officers, directors and greater than ten percent stockholders
are required by SEC regulation, to furnish us with copies of all Section 16(a)
forms they file. To our knowledge, all of these filing requirements have been
satisfied. In making this statement, we have relied solely upon review of the
copies of such reports furnished to us and written representations from our
officers and directors that no other reports were required.

DEADLINE FOR RECEIPT OF STOCKHOLDER
PROPOSALS FOR 2001 ANNUAL MEETING

Proposals of stockholders that are intended to be presented by such
stockholders at our 2001 annual meeting of stockholders must be received by us
no later than December 26, 2000 in order that such proposals may be included in
the proxy statement and form of proxy relating to that meeting.

23
<PAGE> 26

OTHER MATTERS

As of the date of this proxy statement, our board of directors knows of no
other matters to be submitted to the annual meeting. As to other business, if
any, that may come before the annual meeting, it is intended that proxies in the
enclosed form will be voted in respect thereof in accordance with the judgment
of the person or persons voting the proxies.

BY ORDER OF THE BOARD OF DIRECTORS

/s/ Keith A. Zar
Keith A. Zar
Secretary

Rohnert Park, California
April 26, 2000

A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1999, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, IS
AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST TO NEXT LEVEL COMMUNICATIONS,
INC., 6085 STATE FARM DRIVE, ROHNERT PARK, CALIFORNIA 94928, ATTENTION:
CORPORATE SECRETARY.

24
<PAGE> 27

APPENDIX A

NEXT LEVEL COMMUNICATIONS, INC.

1999 EQUITY INCENTIVE PLAN
(AS ADOPTED EFFECTIVE NOVEMBER 9, 1999)
<PAGE> 28

NEXT LEVEL COMMUNICATIONS, INC.

1999 EQUITY INCENTIVE PLAN
(AS ADOPTED EFFECTIVE NOVEMBER 9, 1999)

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Article 1. Introduction..................................... A-1
Article 2. Administration................................... A-1
2.1 Committee Composition................................. A-1
2.2 Committee Responsibilities............................ A-1
2.3 Committee for Non-Officer Grants...................... A-1
Article 3. Shares Available for Grants...................... A-1
3.1 Basic Limitation...................................... A-1
3.2 Additional Shares..................................... A-1
3.3 Dividend Equivalents.................................. A-2
Article 4. Eligibility...................................... A-2
4.1 Incentive Stock Options............................... A-2
4.2 Other Grants.......................................... A-2
Article 5. Options.......................................... A-2
5.1 Stock Option Agreement................................ A-2
5.2 Number of Shares...................................... A-2
5.3 Exercise Price........................................ A-2
5.4 Exercisability and Term............................... A-2
5.5 Effect of Change in Control........................... A-3
5.6 Modification or Assumption of Options................. A-3
5.7 Buyout Provisions..................................... A-3
Article 6. Payment for Option Shares........................ A-3
6.1 General Rule.......................................... A-3
6.2 Surrender of Stock.................................... A-3
6.3 Exercise/Sale......................................... A-3
6.4 Exercise/Pledge....................................... A-3
6.5 Other Forms of Payment................................ A-3
Article 7. Automatic Option Grants to Outside Directors..... A-4
7.1 Initial Grants........................................ A-4
7.2 Annual Grants......................................... A-4
7.3 Accelerated Exercisability............................ A-4
7.4 Exercise Price........................................ A-4
7.5 Term.................................................. A-4
7.6 Affiliates of Outside Directors....................... A-4
Article 8. Stock Appreciation Rights........................ A-4
8.1 SAR Agreement......................................... A-4
8.2 Number of Shares...................................... A-4
8.3 Exercise Price........................................ A-4
8.4 Exercisability and Term............................... A-5
8.5 Effect of Change in Control........................... A-5
8.6 Exercise of SARs...................................... A-5
8.7 Modification or Assumption of SARs.................... A-5
</TABLE>

i
<PAGE> 29

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Article 9. Restricted Shares................................ A-5
9.1 Restricted Stock Agreement............................ A-5
9.2 Payment for Awards.................................... A-5
9.3 Vesting Conditions.................................... A-5
9.4 Voting and Dividend Rights............................ A-6
Article 10. Stock Units..................................... A-6
10.1 Stock Unit Agreement................................. A-6
10.2 Payment for Awards................................... A-6
10.3 Vesting Conditions................................... A-6
10.4 Voting and Dividend Rights........................... A-6
10.5 Form and Time of Settlement of Stock Units........... A-6
10.6 Death of Recipient................................... A-6
10.7 Creditors' Rights.................................... A-7
Article 11. Protection Against Dilution..................... A-7
11.1 Adjustments.......................................... A-7
11.2 Dissolution or Liquidation........................... A-7
11.3 Reorganizations...................................... A-7
Article 12. Deferral of Awards.............................. A-7
Article 13. Awards Under Other Plans........................ A-8
Article 14. Payment of Director's Fees in Securities........ A-8
14.1 Effective Date....................................... A-8
14.2 Elections to Receive NSOs, Restricted Shares or Stock
Units.................................................. A-8
14.3 Number and Terms of NSOs, Restricted Shares or Stock
Units.................................................. A-8
Article 15. Limitation on Rights............................ A-8
15.1 Retention Rights..................................... A-8
15.2 Stockholders' Rights................................. A-8
15.3 Regulatory Requirements.............................. A-8
Article 16. Withholding Taxes............................... A-9
16.1 General.............................................. A-9
16.2 Share Withholding.................................... A-9
Article 17. Future of the Plan.............................. A-9
17.1 Term of the Plan..................................... A-9
17.2 Amendment or Termination............................. A-9
Article 18. Limitation on Payments.......................... A-9
18.1 Scope of Limitation.................................. A-9
18.2 Basic Rule........................................... A-9
18.3 Reduction of Payments................................ A-9
18.4 Overpayments and Underpayments....................... A-10
18.5 Related Corporations................................. A-10
Article 19. Definitions..................................... A-10
Article 20. Execution....................................... A-13
</TABLE>

ii
<PAGE> 30

NEXT LEVEL COMMUNICATIONS, INC.

1999 EQUITY INCENTIVE PLAN

ARTICLE 1. INTRODUCTION.

The Plan was adopted by the Board effective as of the date of the Company's
initial public offering. The purpose of the Plan is to promote the long-term
success of the Company and the creation of stockholder value by (a) encouraging
Employees, Outside Directors and Consultants to focus on critical long-range
objectives, (b) encouraging the attraction and retention of Employees, Outside
Directors and Consultants with exceptional qualifications and (c) linking
Employees, Outside Directors and Consultants directly to stockholder interests
through increased stock ownership. The Plan seeks to achieve this purpose by
providing for Awards in the form of Restricted Shares, Stock Units, Options
(which may constitute incentive stock options or nonstatutory stock options) or
stock appreciation rights.

The Plan shall be governed by, and construed in accordance with, the laws
of the State of Delaware (except their choice-of-law provisions).

ARTICLE 2. ADMINISTRATION.

2.1 Committee Composition. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of two or more directors of
the Company, who shall be appointed by the Board. In addition, the composition
of the Committee shall satisfy:

(a) Such requirements as the Securities and Exchange Commission may
establish for administrators acting under plans intended to qualify for
exemption under Rule 16b-3 (or its successor) under the Exchange Act; and

(b) Such requirements as the Internal Revenue Service may establish
for outside directors acting under plans intended to qualify for exemption
under section 162(m)(4)(C) of the Code.

2.2 Committee Responsibilities. The Committee shall (a) select the
Employees, Outside Directors and Consultants who are to receive Awards under the
Plan, (b) determine the type, number, vesting requirements and other features
and conditions of such Awards, (c) interpret the Plan and (d) make all other
decisions relating to the operation of the Plan. The Committee may adopt such
rules or guidelines as it deems appropriate to implement the Plan. The
Committee's determinations under the Plan shall be final and binding on all
persons.

2.3 Committee for Non-Officer Grants. The Board may also appoint a
secondary committee of the Board, which shall be composed of one or more
directors of the Company who need not satisfy the requirements of Section 2.1.
Such secondary committee may administer the Plan with respect to Employees and
Consultants who are not considered officers or directors of the Company under
section 16 of the Exchange Act, may grant Awards under the Plan to such
Employees and Consultants and may determine all features and conditions of such
Awards. Within the limitations of this Section 2.3, any reference in the Plan to
the Committee shall include such secondary committee.

ARTICLE 3. SHARES AVAILABLE FOR GRANTS.

3.1 Basic Limitation. Common Shares issued pursuant to the Plan may be
authorized but unissued shares or treasury shares. The aggregate number of
Options, SARs, Stock Units and Restricted Shares awarded under the Plan shall
not exceed (a) 7.9 million plus (b) the aggregate number of Common Shares
remaining available for grants under the Predecessor Plan on the date of the
Company's initial public offering plus (c) the additional Common Shares
described in Section 3.2. No additional grants shall be made under the
Predecessor Plan after the date of the Company's initial public offering. The
limitations of this Section 3.1 and Section 3.2 shall be subject to adjustment
pursuant to Article 11.

3.2 Additional Shares. If Options granted under this Plan or the
Predecessor Plan are forfeited or terminate for any other reason before being
exercised, then the corresponding Common Shares shall again

A-1
<PAGE> 31

become available for Awards under this Plan. If Common Shares issued upon the
exercise of Options granted under this Plan or the Predecessor Plan are
forfeited, then such Common Shares shall again become available for Awards under
this Plan. If Restricted Shares issued under this Plan or the Predecessor Plan
are forfeited, then the corresponding Common Shares shall again become available
for Awards under this Plan. If Stock Units or SARs are forfeited or terminate
for any other reason before being exercised, then the corresponding Common
Shares shall again become available for Awards under the Plan. If Stock Units
are settled, then only the number of Common Shares (if any) actually issued in
settlement of such Stock Units shall reduce the number available under Section
3.1 and the balance shall again become available for Awards under the Plan. If
SARs are exercised, then only the number of Common Shares (if any) actually
issued in settlement of such SARs shall reduce the number available under
Section 3.1 and the balance shall again become available for Awards under the
Plan. The foregoing notwithstanding, the aggregate number of Common Shares that
may be issued under the Plan upon the exercise of ISOs shall not be increased
when Restricted Shares or other Common Shares are forfeited.

3.3 Dividend Equivalents. Any dividend equivalents paid or credited under
the Plan shall not be applied against the number of Restricted Shares, Stock
Units, Options or SARs available for Awards, whether or not such dividend
equivalents are converted into Stock Units.

ARTICLE 4. ELIGIBILITY.

4.1 Incentive Stock Options. Only Employees who are common-law employees
of the Company, a Parent or a Subsidiary shall be eligible for the grant of
ISOs. In addition, an Employee who owns more than 10% of the total combined
voting power of all classes of outstanding stock of the Company or any of its
Parents or Subsidiaries shall not be eligible for the grant of an ISO unless the
requirements set forth in section 422(c)(6) of the Code are satisfied.

4.2 Other Grants. Only Employees, Outside Directors and Consultants shall
be eligible for the grant of Restricted Shares, Stock Units, NSOs or SARs.

ARTICLE 5. OPTIONS.

5.1 Stock Option Agreement. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms of the Plan and may be
subject to any other terms that are not inconsistent with the Plan. The Stock
Option Agreement shall specify whether the Option is an ISO or an NSO. The
provisions of the various Stock Option Agreements entered into under the Plan
need not be identical. Options may be granted in consideration of a reduction in
the Optionee's other compensation. A Stock Option Agreement may provide that a
new Option will be granted automatically to the Optionee when he or she
exercises a prior Option and pays the Exercise Price in the form described in
Section 6.2.

5.2 Number of Shares. Each Stock Option Agreement shall specify the number
of Common Shares subject to the Option and shall provide for the adjustment of
such number in accordance with Article 11. Options granted to any Optionee in a
single fiscal year of the Company shall not cover more than two million Common
Shares, except that Options granted to a new Employee in the fiscal year of the
Company in which his or her service as an Employee first commences shall not
cover more than three million Common Shares. The limitations set forth in the
preceding sentence shall be subject to adjustment in accordance with Article 11.

5.3 Exercise Price. Each Stock Option Agreement shall specify the Exercise
Price; provided that the Exercise Price shall in no event be less than 100% of
the Fair Market Value of a Common Share on the date of grant. In the case of an
NSO, a Stock Option Agreement may specify an Exercise Price that varies in
accordance with a predetermined formula while the NSO is outstanding.

5.4 Exercisability and Term. Each Stock Option Agreement shall specify the
date or event when all or any installment of the Option is to become
exercisable. Each Option shall become exercisable in full in the event of the
Optionee's death or Total Disability. The Stock Option Agreement shall also
specify the term of

A-2
<PAGE> 32

the Option; provided that the term of an ISO shall in no event exceed 10 years
from the date of grant. A Stock Option Agreement may provide for expiration
prior to the end of its term in the event of the termination of the Optionee's
service. Options may be awarded in combination with SARs, and such an Award may
provide that the Options will not be exercisable unless the related SARs are
forfeited.

5.5 Effect of Change in Control. The Committee may determine, at the time
of granting an Option or thereafter, that such Option shall become exercisable
as to all or part of the Common Shares subject to such Option in the event that
the Company is subject to a Change in Control or in the event that the Optionee
is subject to an Involuntary Termination within six months after a Change in
Control. However, in the case of an ISO, the acceleration of exercisability
shall not occur without the Optionee's written consent.

5.6 Modification or Assumption of Options. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding options or may
accept the cancellation of outstanding options (whether granted by the Company
or by another issuer) in return for the grant of new options for the same or a
different number of shares and at the same or a different exercise price. The
foregoing notwithstanding, no modification of an Option shall, without the
consent of the Optionee, alter or impair his or her rights or obligations under
such Option.

5.7 Buyout Provisions. The Committee may at any time (a) offer to buy out
for a payment in cash or cash equivalents an Option previously granted or (b)
authorize an Optionee to elect to cash out an Option previously granted, in
either case at such time and based upon such terms and conditions as the
Committee shall establish.

ARTICLE 6. PAYMENT FOR OPTION SHARES.

6.1 General Rule. The entire Exercise Price of Common Shares issued upon
exercise of Options shall be payable in cash or cash equivalents at the time
when such Common Shares are purchased, except as follows:

(a) In the case of an ISO granted under the Plan, payment shall be
made only pursuant to the express provisions of the applicable Stock Option
Agreement. The Stock Option Agreement may specify that payment may be made
in any form(s) described in this Article 6.

(b) In the case of an NSO, the Committee may at any time accept
payment in any form(s) described in this Article 6.

6.2 Surrender of Stock. To the extent that this Section 6.2 is applicable,
all or any part of the Exercise Price may be paid by surrendering, or attesting
to the ownership of, Common Shares that are already owned by the Optionee. Such
Common Shares shall be valued at their Fair Market Value on the date when the
new Common Shares are purchased under the Plan. The Optionee shall not
surrender, or attest to the ownership of, Common Shares in payment of the
Exercise Price if such action would cause the Company to recognize compensation
expense (or additional compensation expense) with respect to the Option for
financial reporting purposes.

6.3 Exercise/Sale. To the extent that this Section 6.3 is applicable, all
or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Company) an irrevocable direction to a
securities broker approved by the Company to sell all or part of the Common
Shares being purchased under the Plan and to deliver all or part of the sales
proceeds to the Company.

6.4 Exercise/Pledge. To the extent that this Section 6.4 is applicable,
all or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Company) an irrevocable direction to
pledge all or part of the Common Shares being purchased under the Plan to a
securities broker or lender approved by the Company, as security for a loan, and
to deliver all or part of the loan proceeds to the Company.

6.5 Other Forms of Payment. To the extent that this Section 6.5 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid in any other form that is consistent with applicable laws, regulations
and rules.

A-3
<PAGE> 33

ARTICLE 7. AUTOMATIC OPTION GRANTS TO OUTSIDE DIRECTORS.

7.1 Initial Grants. Each Outside Director who first becomes a member of
the Board after the date of the Company's initial public offering shall receive
a one-time grant of an NSO covering 20,000 Common Shares (subject to adjustment
under Article 11). Such NSO shall be granted on the date when such Outside
Director first joins the Board. Such NSO shall become exercisable with respect
to 5,000 Common Shares upon completion of the first 12 months of service as an
Outside Director and with respect to an additional 416.667 Common Shares upon
completion of each of the next 36 months of service as an Outside Director. An
Outside Director who previously was an Employee shall not receive a grant under
this Section 7.1.

7.2 Annual Grants. Upon the conclusion of each regular annual meeting of
the Company's stockholders held in the year 2000 or thereafter, each Outside
Director who will continue serving as a member of the Board thereafter shall
receive an NSO covering 5,000 Common Shares (subject to adjustment under Article
11), except that such NSO shall not be granted in the calendar year in which the
same Outside Director received the NSO described in Section 7.1. NSOs granted
under this Section 7.2 shall become exercisable in full on the first anniversary
of the date of grant. An Outside Director who previously was an Employee shall
be eligible to receive grants under this Section 7.2.

7.3 Accelerated Exercisability. All NSOs granted to an Outside Director
under this Article 7 shall also become exercisable in full in the event of:

(a) The termination of such Outside Director's service because of
death, Total Disability or retirement at or after age 65; or

(b) A Change in Control with respect to the Company.

7.4 Exercise Price. The Exercise Price under all NSOs granted to an
Outside Director under this Article 7 shall be equal to 100% of the Fair Market
Value of a Common Share on the date of grant, payable in one of the forms
described in Sections 6.1, 6.2 or 6.3.

7.5 Term. All NSOs granted to an Outside Director under this Article 7
shall terminate on the earliest of (a) the 10th anniversary of the date of grant
or (b) the date 12 months after the termination of such Outside Director's
service for any reason.

7.6 Affiliates of Outside Directors. The Committee may provide that the
NSOs that otherwise would be granted to an Outside Director under this Article 7
shall instead be granted to an affiliate of such Outside Director. Such
affiliate shall then be deemed to be an Outside Director for purposes of the
Plan, provided that the service-related vesting and termination provisions
pertaining to the NSOs shall be applied with regard to the service of the
Outside Director.

ARTICLE 8. STOCK APPRECIATION RIGHTS.

8.1 SAR Agreement. Each grant of an SAR under the Plan shall be evidenced
by an SAR Agreement between the Optionee and the Company. Such SAR shall be
subject to all applicable terms of the Plan and may be subject to any other
terms that are not inconsistent with the Plan. The provisions of the various SAR
Agreements entered into under the Plan need not be identical. SARs may be
granted in consideration of a reduction in the Optionee's other compensation.

8.2 Number of Shares. Each SAR Agreement shall specify the number of
Common Shares to which the SAR pertains and shall provide for the adjustment of
such number in accordance with Article 11. SARs granted to any Optionee in a
single calendar year shall in no event pertain to more than two million Common
Shares, except that SARs granted to a new Employee in the fiscal year of the
Company in which his or her service as an Employee first commences shall not
pertain to more than three million Common Shares. The limitations set forth in
the preceding sentence shall be subject to adjustment in accordance with Article
11.

8.3 Exercise Price. Each SAR Agreement shall specify the Exercise Price;
provided that the Exercise Price shall in no event be less than 100% of the Fair
Market Value of a Common Share on the date of grant.

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An SAR Agreement may specify an Exercise Price that varies in accordance with a
predetermined formula while the SAR is outstanding.

8.4 Exercisability and Term. Each SAR Agreement shall specify the date
when all or any installment of the SAR is to become exercisable. Each SAR shall
become exercisable in full in the event of the Optionee's death or Total
Disability. The SAR Agreement shall also specify the term of the SAR. An SAR
Agreement may provide for expiration prior to the end of its term in the event
of the termination of the Optionee's service. SARs may be awarded in combination
with Options, and such an Award may provide that the SARs will not be
exercisable unless the related Options are forfeited. An SAR may be included in
an ISO only at the time of grant but may be included in an NSO at the time of
grant or thereafter. An SAR granted under the Plan may provide that it will be
exercisable only in the event of a Change in Control.

8.5 Effect of Change in Control. The Committee may determine, at the time
of granting an SAR or thereafter, that such SAR shall become fully exercisable
as to all Common Shares subject to such SAR in the event that the Company is
subject to a Change in Control or in the event that the Optionee is subject to
an Involuntary Termination within six months after a Change in Control.

8.6 Exercise of SARs. Upon exercise of an SAR, the Optionee (or any person
having the right to exercise the SAR after his or her death) shall receive from
the Company (a) Common Shares, (b) cash or (c) a combination of Common Shares
and cash, as the Committee shall determine. The amount of cash and/or the Fair
Market Value of Common Shares received upon exercise of SARs shall, in the
aggregate, be equal to the amount by which the Fair Market Value (on the date of
surrender) of the Common Shares subject to the SARs exceeds the Exercise Price.
If, on the date when an SAR expires, the Exercise Price under such SAR is less
than the Fair Market Value on such date but any portion of such SAR has not been
exercised or surrendered, then such SAR shall automatically be deemed to be
exercised as of such date with respect to such portion.

8.7 Modification or Assumption of SARs. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding SARs or may accept
the cancellation of outstanding SARs (whether granted by the Company or by
another issuer) in return for the grant of new SARs for the same or a different
number of shares and at the same or a different exercise price. The foregoing
notwithstanding, no modification of an SAR shall, without the consent of the
Optionee, alter or impair his or her rights or obligations under such SAR.

ARTICLE 9. RESTRICTED SHARES.

9.1 Restricted Stock Agreement. Each grant of Restricted Shares under the
Plan shall be evidenced by a Restricted Stock Agreement between the recipient
and the Company. Such Restricted Shares shall be subject to all applicable terms
of the Plan and may be subject to any other terms that are not inconsistent with
the Plan. The provisions of the various Restricted Stock Agreements entered into
under the Plan need not be identical.

9.2 Payment for Awards. Subject to the following sentence, Restricted
Shares may be sold or awarded under the Plan for such consideration as the
Committee may determine, including (without limitation) cash, cash equivalents,
full-recourse promissory notes, past services and future services. To the extent
that an Award consists of newly issued Restricted Shares, the consideration
shall consist exclusively of cash, cash equivalents or past services rendered to
the Company (or a Parent or Subsidiary) or, for the amount in excess of the par
value of such newly issued Restricted Shares, full-recourse promissory notes, as
the Committee may determine.

9.3 Vesting Conditions. Each Award of Restricted Shares may or may not be
subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Restricted Stock Agreement. A
Restricted Stock Agreement may provide for accelerated vesting in the event of
the Participant's death, disability or retirement or other events. The Committee
may determine, at the time of granting Restricted Shares or thereafter, that all
or part of such Restricted Shares shall become vested in the

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event that the Company is subject to a Change in Control or in the event that
the Participant is subject to an Involuntary Termination within six months after
a Change in Control.

9.4 Voting and Dividend Rights. The holders of Restricted Shares awarded
under the Plan shall have the same voting, dividend and other rights as the
Company's other stockholders. A Restricted Stock Agreement, however, may require
that the holders of Restricted Shares invest any cash dividends received in
additional Restricted Shares. Such additional Restricted Shares shall be subject
to the same conditions and restrictions as the Award with respect to which the
dividends were paid.

ARTICLE 10. STOCK UNITS.

10.1 Stock Unit Agreement. Each grant of Stock Units under the Plan shall
be evidenced by a Stock Unit Agreement between the recipient and the Company.
Such Stock Units shall be subject to all applicable terms of the Plan and may be
subject to any other terms that are not inconsistent with the Plan. The
provisions of the various Stock Unit Agreements entered into under the Plan need
not be identical. Stock Units may be granted in consideration of a reduction in
the recipient's other compensation.

10.2 Payment for Awards. To the extent that an Award is granted in the
form of Stock Units, no cash consideration shall be required of the Award
recipients.

10.3 Vesting Conditions. Each Award of Stock Units may or may not be
subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Stock Unit Agreement. A Stock
Unit Agreement may provide for accelerated vesting in the event of the
Participant's death, disability or retirement or other events. The Committee may
determine, at the time of granting Stock Units or thereafter, that all or part
of such Stock Units shall become vested in the event that the Company is subject
to a Change in Control or in the event that the Participant is subject to an
Involuntary Termination within six months after a Change in Control.

10.4 Voting and Dividend Rights. The holders of Stock Units shall have no
voting rights. Prior to settlement or forfeiture, any Stock Unit awarded under
the Plan may, at the Committee's discretion, carry with it a right to dividend
equivalents. Such right entitles the holder to be credited with an amount equal
to all cash dividends paid on one Common Share while the Stock Unit is
outstanding. Dividend equivalents may be converted into additional Stock Units.
Settlement of dividend equivalents may be made in the form of cash, in the form
of Common Shares, or in a combination of both. Prior to distribution, any
dividend equivalents which are not paid shall be subject to the same conditions
and restrictions as the Stock Units to which they attach.

10.5 Form and Time of Settlement of Stock Units. Settlement of vested
Stock Units may be made in the form of (a) cash, (b) Common Shares or (c) any
combination of both, as determined by the Committee. The actual number of Stock
Units eligible for settlement may be larger or smaller than the number included
in the original Award, based on predetermined performance factors. Methods of
converting Stock Units into cash may include (without limitation) a method based
on the average Fair Market Value of Common Shares over a series of trading days.
Vested Stock Units may be settled in a lump sum or in installments. The
distribution may occur or commence when all vesting conditions applicable to the
Stock Units have been satisfied or have lapsed, or it may be deferred to any
later date. The amount of a deferred distribution may be increased by an
interest factor or by dividend equivalents. Until an Award of Stock Units is
settled, the number of such Stock Units shall be subject to adjustment pursuant
to Article 11.

10.6 Death of Recipient. Any Stock Units Award that becomes payable after
the recipient's death shall be distributed to the recipient's beneficiary or
beneficiaries. Each recipient of a Stock Units Award under the Plan shall
designate one or more beneficiaries for this purpose by filing the prescribed
form with the Company. A beneficiary designation may be changed by filing the
prescribed form with the Company at any time before the Award recipient's death.
If no beneficiary was designated or if no designated beneficiary survives the
Award recipient, then any Stock Units Award that becomes payable after the
recipient's death shall be distributed to the recipient's estate.

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10.7 Creditors' Rights. A holder of Stock Units shall have no rights other
than those of a general creditor of the Company. Stock Units represent an
unfunded and unsecured obligation of the Company, subject to the terms and
conditions of the applicable Stock Unit Agreement.

ARTICLE 11. PROTECTION AGAINST DILUTION.

11.1 Adjustments. In the event of a subdivision of the outstanding Common
Shares, a declaration of a dividend payable in Common Shares, a declaration of a
dividend payable in a form other than Common Shares in an amount that has a
material effect on the price of Common Shares, a combination or consolidation of
the outstanding Common Shares (by reclassification or otherwise) into a lesser
number of Common Shares, a recapitalization, a spin-off or a similar occurrence,
the Committee shall make such adjustments as it, in its sole discretion, deems
appropriate in one or more of:

(a) The number of Options, SARs, Restricted Shares and Stock Units
available for future Awards under Article 3;

(b) The limitations set forth in Sections 5.2 and 8.2;

(d) The number of Common Shares covered by each outstanding Option and
SAR;

(e) The Exercise Price under each outstanding Option and SAR; or

(f) The number of Stock Units included in any prior Award which has
not yet been settled.

Except as provided in this Article 11, a Participant shall have no rights by
reason of any issue by the Company of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class.

11.2 Dissolution or Liquidation. To the extent not previously exercised or
settled, Options, SARs and Stock Units shall terminate immediately prior to the
dissolution or liquidation of the Company.

11.3 Reorganizations. In the event that the Company is a party to a merger
or other reorganization, outstanding Awards shall be subject to the agreement of
merger or reorganization. Such agreement shall provide for (a) the continuation
of the outstanding Awards by the Company, if the Company is a surviving
corporation, (b) the assumption of the outstanding Awards by the surviving
corporation or its parent or subsidiary, (c) the substitution by the surviving
corporation or its parent or subsidiary of its own awards for the outstanding
Awards, (d) full exercisability or vesting and accelerated expiration of the
outstanding Awards or (e) settlement of the full value of the outstanding Awards
in cash or cash equivalents followed by cancellation of such Awards.

ARTICLE 12. DEFERRAL OF AWARDS.

The Committee (in its sole discretion) may permit or require a Participant
to:

(a) Have cash that otherwise would be paid to such Participant as a
result of the exercise of an SAR or the settlement of Stock Units credited
to a deferred compensation account established for such Participant by the
Committee as an entry on the Company's books;

(b) Have Common Shares that otherwise would be delivered to such
Participant as a result of the exercise of an Option or SAR converted into
an equal number of Stock Units; or

(c) Have Common Shares that otherwise would be delivered to such
Participant as a result of the exercise of an Option or SAR or the
settlement of Stock Units converted into amounts credited to a deferred
compensation account established for such Participant by the Committee as
an entry on the Company's books. Such amounts shall be determined by
reference to the Fair Market Value of such Common Shares as of the date
when they otherwise would have been delivered to such Participant.

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A deferred compensation account established under this Article 12 may be
credited with interest or other forms of investment return, as determined by the
Committee. A Participant for whom such an account is established shall have no
rights other than those of a general creditor of the Company. Such an account
shall represent an unfunded and unsecured obligation of the Company and shall be
subject to the terms and conditions of the applicable agreement between such
Participant and the Company. If the deferral or conversion of Awards is
permitted or required, the Committee (in its sole discretion) may establish
rules, procedures and forms pertaining to such Awards, including (without
limitation) the settlement of deferred compensation accounts established under
this Article 12.

ARTICLE 13. AWARDS UNDER OTHER PLANS.

The Company may grant awards under other plans or programs. Such awards may
be settled in the form of Common Shares issued under this Plan. Such Common
Shares shall be treated for all purposes under the Plan like Common Shares
issued in settlement of Stock Units and shall, when issued, reduce the number of
Common Shares available under Article 3.

ARTICLE 14. PAYMENT OF DIRECTOR'S FEES IN SECURITIES.

14.1 Effective Date. No provision of this Article 14 shall be effective
unless and until the Board has determined to implement such provision.

14.2 Elections to Receive NSOs, Restricted Shares or Stock Units. An
Outside Director may elect to receive his or her annual retainer payments and/or
meeting fees from the Company in the form of cash, NSOs, Restricted Shares or
Stock Units, or a combination thereof, as determined by the Board. Such NSOs,
Restricted Shares and Stock Units shall be issued under the Plan. An election
under this Article 14 shall be filed with the Company on the prescribed form.

14.3 Number and Terms of NSOs, Restricted Shares or Stock Units. The
number of NSOs, Restricted Shares or Stock Units to be granted to Outside
Directors in lieu of annual retainers and meeting fees that would otherwise be
paid in cash shall be calculated in a manner determined by the Board. The terms
of such NSOs, Restricted Shares or Stock Units shall also be determined by the
Board.

ARTICLE 15. LIMITATION ON RIGHTS.

15.1 Retention Rights. Neither the Plan nor any Award granted under the
Plan shall be deemed to give any individual a right to remain an Employee,
Outside Director or Consultant. The Company and its Parents, Subsidiaries and
Affiliates reserve the right to terminate the service of any Employee, Outside
Director or Consultant at any time, with or without cause, subject to applicable
laws, the Company's certificate of incorporation and by-laws and a written
employment agreement (if any).

15.2 Stockholders' Rights. A Participant shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any Common Shares
covered by his or her Award prior to the time when a stock certificate for such
Common Shares is issued or, if applicable, the time when he or she becomes
entitled to receive such Common Shares by filing any required notice of exercise
and paying any required Exercise Price. No adjustment shall be made for cash
dividends or other rights for which the record date is prior to such time,
except as expressly provided in the Plan.

15.3 Regulatory Requirements. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue Common Shares under the
Plan shall be subject to all applicable laws, rules and regulations and such
approval by any regulatory body as may be required. The Company reserves the
right to restrict, in whole or in part, the delivery of Common Shares pursuant
to any Award prior to the satisfaction of all legal requirements relating to the
issuance of such Common Shares, to their registration, qualification or listing
or to an exemption from registration, qualification or listing.

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ARTICLE 16. WITHHOLDING TAXES.

16.1 General. To the extent required by applicable federal, state, local
or foreign law, a Participant or his or her successor shall make arrangements
satisfactory to the Company for the satisfaction of any withholding tax
obligations that arise in connection with the Plan. The Company shall not be
required to issue any Common Shares or make any cash payment under the Plan
until such obligations are satisfied.

16.2 Share Withholding. The Committee may permit a Participant to satisfy
all or part of his or her withholding or income tax obligations by having the
Company withhold all or a portion of any Common Shares that otherwise would be
issued to him or her or by surrendering all or a portion of any Common Shares
that he or she previously acquired. Such Common Shares shall be valued at their
Fair Market Value on the date when they are withheld or surrendered.

ARTICLE 17. FUTURE OF THE PLAN.

17.1 Term of the Plan. The Plan, as set forth herein, shall become
effective as of the date of the Company's initial public offering. The Plan
shall remain in effect until it is terminated under Section 17.2, except that no
ISOs shall be granted on or after the 10th anniversary of the later of (a) the
date when the Board adopted the Plan or (b) the date when the Board adopted the
most recent increase in the number of Common Shares available under Article 3
which was approved by the Company's stockholders.

17.2 Amendment or Termination. The Board may, at any time and for any
reason, amend or terminate the Plan. An amendment of the Plan shall be subject
to the approval of the Company's stockholders only to the extent required by
applicable laws, regulations or rules. No Awards shall be granted under the Plan
after the termination thereof. The termination of the Plan, or any amendment
thereof, shall not affect any Award previously granted under the Plan.

ARTICLE 18. LIMITATION ON PAYMENTS.

18.1 Scope of Limitation. This Article 18 shall apply to an Award only if:

(a) The independent auditors most recently selected by the Board (the
"Auditors") determine that the after-tax value of such Award to the
Participant, taking into account the effect of all federal, state and local
income taxes, employment taxes and excise taxes applicable to the
Participant (including the excise tax under section 4999 of the Code), will
be greater after the application of this Article 18 than it was before the
application of this Article 18; or

(b) The Committee, at the time of making an Award under the Plan or at
any time thereafter, specifies in writing that such Award shall be subject
to this Article 18 (regardless of the after-tax value of such Award to the
Participant).

If this Article 18 applies to an Award, it shall supersede any contrary
provision of the Plan or of any Award granted under the Plan.

18.2 Basic Rule. In the event that the Auditors determine that any payment
or transfer by the Company under the Plan to or for the benefit of a Participant
(a "Payment") would be nondeductible by the Company for federal income tax
purposes because of the provisions concerning "excess parachute payments" in
section 280G of the Code, then the aggregate present value of all Payments shall
be reduced (but not below zero) to the Reduced Amount. For purposes of this
Article 18, the "Reduced Amount" shall be the amount, expressed as a present
value, which maximizes the aggregate present value of the Payments without
causing any Payment to be nondeductible by the Company because of section 280G
of the Code.

18.3 Reduction of Payments. If the Auditors determine that any Payment
would be nondeductible by the Company because of section 280G of the Code, then
the Company shall promptly give the Participant notice to that effect and a copy
of the detailed calculation thereof and of the Reduced Amount, and the
Participant may then elect, in his or her sole discretion, which and how much of
the Payments shall be eliminated or reduced (as long as after such election the
aggregate present value of the Payments equals the Reduced Amount) and shall
advise the Company in writing of his or her election within 10 days of receipt
of

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notice. If no such election is made by the Participant within such 10-day
period, then the Company may elect which and how much of the Payments shall be
eliminated or reduced (as long as after such election the aggregate present
value of the Payments equals the Reduced Amount) and shall notify the
Participant promptly of such election. For purposes of this Article 18, present
value shall be determined in accordance with section 280G(d)(4) of the Code. All
determinations made by the Auditors under this Article 18 shall be binding upon
the Company and the Participant and shall be made within 60 days of the date
when a Payment becomes payable or transferable. As promptly as practicable
following such determination and the elections hereunder, the Company shall pay
or transfer to or for the benefit of the Participant such amounts as are then
due to him or her under the Plan and shall promptly pay or transfer to or for
the benefit of the Participant in the future such amounts as become due to him
or her under the Plan.

18.4 Overpayments and Underpayments. As a result of uncertainty in the
application of section 280G of the Code at the time of an initial determination
by the Auditors hereunder, it is possible that Payments will have been made by
the Company which should not have been made (an "Overpayment") or that
additional Payments which will not have been made by the Company could have been
made (an "Underpayment"), consistent in each case with the calculation of the
Reduced Amount hereunder. In the event that the Auditors, based upon the
assertion of a deficiency by the Internal Revenue Service against the Company or
the Participant which the Auditors believe has a high probability of success,
determine that an Overpayment has been made, such Overpayment shall be treated
for all purposes as a loan to the Participant which he or she shall repay to the
Company, together with interest at the applicable federal rate provided in
section 7872(f)(2) of the Code; provided, however, that no amount shall be
payable by the Participant to the Company if and to the extent that such payment
would not reduce the amount which is subject to taxation under section 4999 of
the Code. In the event that the Auditors determine that an Underpayment has
occurred, such Underpayment shall promptly be paid or transferred by the Company
to or for the benefit of the Participant, together with interest at the
applicable federal rate provided in section 7872(f)(2) of the Code.

18.5 Related Corporations. For purposes of this Article 18, the term
"Company" shall include affiliated corporations to the extent determined by the
Auditors in accordance with section 280G(d)(5) of the Code.

ARTICLE 19. DEFINITIONS.

19.1 "Affiliate" means any entity other than a Subsidiary, if the Company
and/or one or more Subsidiaries own not less than 50% of such entity.

19.2 "Award" means any award of an Option, an SAR, a Restricted Share or a
Stock Unit under the Plan.

19.3 "Board" means the Company's Board of Directors, as constituted from
time to time.

19.4 "Cause" means:

(a) The unauthorized use or disclosure of the confidential information
or trade secrets of the Company, which use or disclosure causes material
harm to the Company;

(b) Conviction of, or a plea of "guilty" or "no contest" to, a felony
under the laws of the United States or any state thereof;

(c) Gross negligence or willful misconduct, after the Board has given
the Participant written notice and a reasonable opportunity to cure such
negligence or misconduct; or

(d) Continued failure to perform assigned duties, after the Board has
given the Participant written notice and a reasonable opportunity to cure
such failure.

The foregoing, however, shall not be deemed an exclusive list of all acts or
omissions that the Company (or a Parent, Subsidiary or Affiliate) may consider
as grounds for the discharge of a Participant without Cause.

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19.5 "Change in Control" shall mean:

(a) The consummation of a merger or consolidation of the Company with
or into another entity or any other corporate reorganization, if persons
who were not stockholders of the Company immediately prior to such merger,
consolidation or other reorganization own immediately after such merger,
consolidation or other reorganization 50% or more of the voting power of
the outstanding securities of each of (i) the continuing or surviving
entity and (ii) any direct or indirect parent corporation of such
continuing or surviving entity;

(b) The sale, transfer or other disposition of all or substantially
all of the Company's assets;

(c) A change in the composition of the Board, as a result of which
fewer than 50% of the incumbent directors are directors who either (i) had
been directors of the Company on the date 24 months prior to the date of
the event that may constitute a Change in Control (the "original
directors") or (ii) were elected, or nominated for election, to the Board
with the affirmative votes of at least a majority of the aggregate of the
original directors who were still in office at the time of the election or
nomination and the directors whose election or nomination was previously so
approved; or

(d) Any transaction as a result of which any person is the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing at least 50% of the
total voting power represented by the Company's then outstanding voting
securities. For purposes of this Paragraph (d), the term "person" shall
have the same meaning as when used in sections 13(d) and 14(d) of the
Exchange Act but shall exclude:

(i) A trustee or other fiduciary holding securities under an
employee benefit plan of the Company or of a Parent or Subsidiary;

(ii) A corporation owned directly or indirectly by the stockholders
of the Company in substantially the same proportions as their ownership
of the common stock of the Company; and

(iii) General Instrument Corporation or a direct or indirect
parent, subsidiary or successor corporation of General Instrument
Corporation.

This Paragraph (d) shall not include any transaction whereby
General Instrument Corporation, or a direct or indirect parent,
subsidiary or successor corporation of General Instrument Corporation,
disposes all or part of its equity interest in the Company.

A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.

19.6 "Code" means the Internal Revenue Code of 1986, as amended.

19.7 "Committee" means a committee of the Board, as described in Article
2.

19.8 "Common Share" means one share of the Common Stock of the Company,
with a par value of $0.01 per share.

19.9 "Company" means Next Level Communications, Inc., a Delaware
corporation.

19.10 "Consultant" means a consultant or adviser who provides bona fide
services to the Company, a Parent, a Subsidiary or an Affiliate as an
independent contractor. Service as a Consultant shall be considered employment
for all purposes of the Plan, except as provided in Section 4.1.

19.11 "Employee" means a common-law employee of the Company, a Parent, a
Subsidiary or an Affiliate.

19.12 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

19.13 "Exercise Price," in the case of an Option, means the amount for
which one Common Share may be purchased upon exercise of such Option, as
specified in the applicable Stock Option Agreement. "Exercise

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Price," in the case of an SAR, means an amount, as specified in the applicable
SAR Agreement, which is subtracted from the Fair Market Value of one Common
Share in determining the amount payable upon exercise of such SAR.

19.14 "Fair Market Value" means the market price of Common Shares,
determined by the Committee in good faith on such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in The Wall Street Journal. Such determination
shall be conclusive and binding on all persons.

19.15 "Involuntary Termination" means the termination of the Participant's
service by reason of:

(a) The involuntary discharge of the Participant by the Company (or
the Parent, Subsidiary or Affiliate employing him or her) for reasons other
than Cause; or

(b) The voluntary resignation of the Participant following (i) a
change in his or her position with the Company (or the Parent, Subsidiary
or Affiliate employing him or her) that materially reduces his or her
stature, authority or responsibilities, (ii) a reduction in his or her
compensation, including base salary, fringe benefits and participation in
bonus or incentive programs based on corporate performance, or (iii) a
relocation of his or her principal workplace by more than 30 miles.

19.16 "ISO" means an incentive stock option described in section 422(b) of
the Code.

19.17 "NSO" means a stock option not described in sections 422 or 423 of
the Code.

19.18 "Option" means an ISO or NSO granted under the Plan and entitling
the holder to purchase Common Shares.

19.19 "Optionee" means an individual or estate who holds an Option or SAR.

19.20 "Outside Director" shall mean a member of the Board who is not an
Employee and who is not affiliated with General Instrument Corporation, a direct
or indirect parent, subsidiary or successor corporation of General Instrument
Corporation, or Spencer Trask Investors LLC. Service as an Outside Director
shall be considered employment for all purposes of the Plan, except as provided
in Section 4.1.

19.21 "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent on
a date after the adoption of the Plan shall be considered a Parent commencing as
of such date.

19.22 "Participant" means an individual or estate who holds an Award.

19.23 "Plan" means this Next Level Communications, Inc. 1999 Equity
Incentive Plan, as amended from time to time.

19.24 "Predecessor Plan" means the Next Level Communications, Inc. 1999
Stock Plan.

19.25 "Restricted Share" means a Common Share awarded under the Plan.

19.26 "Restricted Stock Agreement" means the agreement between the Company
and the recipient of a Restricted Share which contains the terms, conditions and
restrictions pertaining to such Restricted Share.

19.27 "SAR" means a stock appreciation right granted under the Plan.

19.28 "SAR Agreement" means the agreement between the Company and an
Optionee which contains the terms, conditions and restrictions pertaining to his
or her SAR.

19.29 "Stock Option Agreement" means the agreement between the Company and
an Optionee that contains the terms, conditions and restrictions pertaining to
his or her Option.

19.30 "Stock Unit" means a bookkeeping entry representing the equivalent
of one Common Share, as awarded under the Plan.

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19.31 "Stock Unit Agreement" means the agreement between the Company and
the recipient of a Stock Unit which contains the terms, conditions and
restrictions pertaining to such Stock Unit.

19.32 "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that attains
the status of a Subsidiary on a date after the adoption of the Plan shall be
considered a Subsidiary commencing as of such date.

19.33 "Total Disability" means that the Participant is unable to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or which
has lasted, or can be expected to last, for a continuous period of not less than
one year.

ARTICLE 20. EXECUTION.

To record the adoption of the Plan by the Board on October 10, 1999, the
Company has caused its duly authorized officer to execute this document in the
name of the Company.

Next Level Communications, Inc.

By:

Title:

A-13
<PAGE> 43
PROXY

NEXT LEVEL COMMUNICATIONS, INC.

6085 State Farm Drive
Rohnert Park, California 94928

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints Keith A. Zar and James T. Wandrey as Proxies,
each with the power to appoint his substitute, and hereby authorizes each of
them to represent and to vote, as designated below, all the shares of Common
Stock of Next Level Communications, Inc. (the "Company") held of record by the
undersigned on April 7, 2000, at the Company's Annual Meeting of Stockholders to
be held on May 25, 2000, and at any adjournment or postponement thereof.

All other proxies heretofore given by the undersigned to vote shares of stock of
the Company, which the undersigned would be entitled to vote if personally
present at the Annual Meeting or any adjournment or postponement thereof, are
hereby expressly revoked.

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS
GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3.

(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)

- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE> 44
<TABLE>
<S> <C> <C>
FOR ALL WITHHOLD
nominees listed below AUTHORITY
(except as indicated to for all nominees
the contrary below) listed below
1. ELECTION OF DIRECTORS / / / /

Ferdinand C. Kuznik
John McCartney
Richard Severns
</TABLE>

(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below)

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

Please mark
your votes as
indicated in
this example. /X/

<TABLE>
<S> <C> <C> <C>
FOR AGAINST ABSTAIN
2. Approval of the Amendment to the 1999 Equity
Incentive Plan. / / / / / /

3. Ratification of the appointment of Deloitte & FOR AGAINST ABSTAIN
Touche LLP as the Company's independent
auditors for 2000. / / / / / /
</TABLE>

4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting or any adjournment
or postponement thereof.

Please date this Proxy and sign it exactly as your name or names appear on your
stock certificate. When shares are held by joint tenants, both should sign. When
signing as an attorney, executor, administrator, trustee or guardian please give
full title as such. If shares are held by a corporation, please sign in full
corporate name by the President or other authorized officer. If shares are held
by a partnership please sign in partnership name by an authorized person.

PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THE PROXY CARD USING THE ENCLOSED
ENVELOPE.

Signature(s) ___________________________________________ Dated: __________, 2000

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