Offer To Exchange Certain Outstanding Options To Purchase

NEXT LEVEL COMMUNICATIONS, INC.


SUPPLEMENT TO THE
OFFER TO EXCHANGE CERTAIN OUTSTANDING OPTIONS TO PURCHASE
COMMON STOCK UNDER THE 1999 EQUITY INCENTIVE PLAN


THIS OFFER AND WITHDRAWAL RIGHTS EXPIRE
AT 9:00 P.M. PDT ON AUGUST 7, 2001
UNLESS THIS OFFER IS EXTENDED


Next Level Communications, Inc. hereby supplements and amends the Offer to Exchange Certain Outstanding Options dated July 11, 2001 as follows:


INTRODUCTION


On July 27, 2001, the last reported sale price of the common stock on the Nasdaq National Market was $3.90 per share. WE RECOMMEND THAT YOU OBTAIN CURRENT MARKET QUOTATIONS FOR OUR COMMON STOCK BEFORE DECIDING WHETHER TO ELECT TO EXCHANGE YOUR OPTIONS.


As of July 27, 2001, options to purchase 13,333,290 shares of our common stock were issued and outstanding under the 1999 Equity Incentive Plan. Of these options, options to purchase 8,321,667 shares of our common stock had an exercise price of $40.00 or higher per share, 5,668,100 of which are held by employees below the senior vice president level. Options to purchase a total of 5,678,600 shares of our common stock are eligible for exchange pursuant to this offer. The shares of common stock issuable upon exercise of options we are offering to exchange represent approximately 7% of the total shares of our common stock outstanding as of July 27, 2001.


1. NUMBER OF OPTIONS; EXPIRATION DATE.


The term "expiration date" means 9:00 p.m. PDT on Tuesday, August 7, 2001, unless and until we, in our discretion, have extended the period of time during which this offer will remain open, in which event the term "expiration date" refers to the latest time and date at which this offer, as so extended, expires.


For purposes of this offer, the term "business day" means any day, other than Saturday, Sunday, or a federal holiday, and shall consist of the time period from 12:01 a.m. through 12:00 midnight Eastern Time.


3. PROCEDURES FOR ELECTING TO EXCHANGE OPTIONS.


Proper Exchange of Options. To validly elect to exchange your options pursuant to this offer, you must, in accordance with the terms of the Amended Election Concerning Exchange of Stock Options form, properly complete, duly execute and deliver to us the Amended Election


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Concerning Exchange of Stock Options form. We must receive the amended form by either internal mail or post in the office of Bob Vereschagin, Human Resources Department, Next Level Communications, Inc., 6085 State Farm Drive, Rohnert Park, California, 94928 before the expiration date. Our receipt of the original Election Concerning Exchange of Stock Options form does not constitute a valid election to exchange your options. We have discarded all original election forms previously submitted to us and we will disregard any original forms that we receive in the future.


If you do not turn in the amended election form by the deadline, then you will not participate in the option exchange, and all stock options currently held by you will remain intact at their original price and original terms. If you have already submitted an original form and we do not receive an amended from before the expiration date, you will not participate in the option exchange, and all stock options currently held by you will remain intact at their original price and original terms.


THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING THE AMENDED ELECTION CONCERNING EXCHANGE OF STOCK OPTIONS FORMS AND ANY OTHER REQUIRED DOCUMENTS, IS AT THE ELECTION AND RISK OF THE ELECTING OPTION HOLDER. IT IS YOUR RESPONSIBILITY TO ALLOW SUFFICIENT TIME TO ENSURE TIMELY DELIVERY AND RECEIPT BY US.


4. WITHDRAWAL RIGHTS.


You can withdraw your options elected for exchange at any time before 9:00 p.m. PDT on Tuesday, August 7, 2001. If this offer is extended by us beyond that time, you can withdraw your elected options at any time until the extended expiration of this offer.


You can also withdraw your options elected for exchange if you have not received notice that we have accepted your options elected for exchange by 9:00 p.m. PDT on September 5, 2001.


5. ACCEPTANCE OF OPTIONS FOR EXCHANGE AND ISSUANCE OF NEW OPTIONS.


As of July 27, 2001, we do not anticipate that the replacement grant date will be significantly delayed beyond the projected replacement grant date as a result of the compensation committee meeting.


If your options are properly elected for exchange and accepted by us for exchange, you will receive a rights letter upon expiration of this offer. The rights letter will confirm that your options have been accepted for exchange and cancelled and will summarize your rights as a participant in the exchange program, including the material terms of this offer such as the projected replacement grant date and the number of shares of our common stock your new options will entitle you to purchase.


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8. INFORMATION CONCERNING NEXT LEVEL COMMUNICATIONS.


Additional Financial Information. We have provided the following additional financial information for your reference. Numbers are in thousands, except for share data.


FISCAL YEAR ENDED THREE MONTHS ENDED SIX MONTHS ENDED --------------------------------------------------------------------------------------------------------
12-31-99 12-31-00 6-30-01 6-30-00 6-30-01 6-30-00 -------------------------------------------------------------------------------------------------------- Current assets $ 184,332 $ 187,232 $ 126,905 $ 168,519 $ 126,905 $ 168,519 -------------------------------------------------------------------------------------------------------- Noncurrent assets 83,479 88,484 82,933 81,861 82,933 81,861 -------------------------------------------------------------------------------------------------------- Current liabilities 36,384 116,967 147,143 47,118 147,143 47,118 -------------------------------------------------------------------------------------------------------- Noncurrent liabilities -- 25,199 -- 25,173 -- 25,173 -------------------------------------------------------------------------------------------------------- Gross profit (loss) 6,040 24,860 (66,038) 8,075 (59,940) 13,606 ------------------------------------------- ...