FIRSTWORLD COMMUNICATIONS INC, S-4/A, 1998-10-08

FIRSTWORLD COMMUNICATIONS INC
S-4/A, 1998-10-08
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 8, 1998

REGISTRATION NO. 333-57829
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- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 2
TO
FORM S-4

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FIRSTWORLD COMMUNICATIONS, INC.

(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 4813 33-0521976
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>

9333 GENESEE AVENUE, SUITE 200
SAN DIEGO, CALIFORNIA 92121
(619) 552-8010

(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

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

ROBERT E. RANDALL
EXECUTIVE VICE PRESIDENT
9333 GENESEE AVENUE, SUITE 200
SAN DIEGO, CALIFORNIA 92121
(619) 552-8010

(Name, address, including zip code, and telephone number, including area code,
of agent for service)

COPIES TO:

DAVID A. HAHN, ESQ.
LATHAM & WATKINS
701 B STREET, SUITE 2100
SAN DIEGO, CALIFORNIA 92101
(619) 236-1234

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

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

If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /

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

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

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE PROPOSED AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER NOTE(1) OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
13% Senior Discount Notes due 2008............ $470,000,000 54.64% $241,797,600(1) $71,330.29(2)
</TABLE>

(1) The 13% Senior Discount Notes will be offered in exchange for the 13% Senior
Discount Notes due 2008 which were issued on April 13, 1998 at a price of
53.235% of their principal amount and accrete in value until April 15, 2003
at the rate of 13% per annum at which time the fully accreted amount
outstanding will be $470.0 million.

(2) Calculated pursuant to Rule 457(f)(2), the filing fee previously submitted
was based on the present discounted book value of the 13% Senior Discount
Notes to be received by the Registrant in the exchange as of June 26, 1998.
--------------------------

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

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<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO RULE 404(A) AND ITEM 501(B) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF THE INFORMATION
REQUIRED BY PART I OF FORM S-4

<TABLE>
<CAPTION>
<C> <S> <C>
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus........................... Outside Front Cover Page; Cross Reference Sheet;
Inside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Inside Front Cover Page; Outside Back Cover Page
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information.................................. Prospectus Summary; Risk Factors; Selected
Consolidated Financial Data
4. Terms of the Transaction............................. The Exchange Offer; Certain United States Federal
Income Tax Considerations; Description of Exchange
Notes
5. Pro Forma Financial Information...................... Prospectus Summary; Selected Consolidated Financial
Data
6. Material Contacts with the Company Being Acquired.... Not Applicable
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters...... Not Applicable
8. Interests of Named Experts and Counsel............... Legal Matters
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities..................... Management
10. Information with Respect to S-3 Registrants.......... Not Applicable
11. Incorporation of Certain Information by Reference.... Not Applicable
12. Information with Respect to S-2 or S-3 Registrant.... Not Applicable
13. Incorporation of Certain Information by Reference.... Not Applicable
14. Information with Respect to Registrants Other than
S-3 or S-2 Registrants............................. Prospectus Summary; Capitalization; Selected
Consolidated Financial Data; Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Business; Management;
Certain Transactions; Principal Stockholders;
Description of Exchange Notes; Book Entry; Delivery
and Form; Plan of Distribution; Legal Matters;
Experts; Available Information; Consolidated
Financial Statements
15. Information with Respect to S-3 Companies............ Not Applicable
16. Information with Respect to S-2 or S-3 Companies..... Not Applicable
17. Information with Respect to Companies Other Than S-2
or S-3 Companies................................... Not Applicable
18. Information if Proxies, Consents or Authorizations
are to be Solicited................................ Not Applicable
19. Information if Proxies, Consents or Authorizations
are not to be Solicited or in an Exchange Offer.... Management; The Exchange Offer; Certain Transactions
</TABLE>
<PAGE>
PROSPECTUS
OCTOBER 8, 1998

OFFER TO EXCHANGE
13% SENIOR DISCOUNT NOTES DUE 2008
FOR ALL OUTSTANDING 13% SENIOR DISCOUNT NOTES DUE 2008
OF

[LOGO]

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

THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME ON NOVEMBER
9, 1998 UNLESS EXTENDED.

FirstWorld Communications, Inc., a Delaware corporation ("FirstWorld" or the
"Company"), is hereby offering (the "Exchange Offer"), upon the terms and
subject to the conditions set forth in this Prospectus (as the same may be
amended or supplemented from time to time, the "Prospectus") and the
accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange
$1,000 in principal amount at maturity of its new 13% Senior Discount Notes due
2008 (the "Exchange Notes"), which exchange has been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
registration statement of which this Prospectus is a part (the "Registration
Statement"), for each $1,000 in principal amount at maturity of its outstanding
13% Senior Discount Notes due 2008 (the "Private Notes"), of which $470,000,000
in aggregate principal amount at maturity was issued on April 13, 1998 (the
"Private Note Offering") and is outstanding as of the date hereof. The form and
terms of the Exchange Notes are the same as the form and terms of the Private
Notes except that (i) the exchange will have been registered under the
Securities Act, and, therefore, the Exchange Notes will not bear legends
restricting the transfer thereof and (ii) holders of the Exchange Notes will not
be entitled to certain rights of holders of the Private Notes under the
Registration Rights Agreement (as defined), which rights will terminate upon the
consummation of the Exchange Offer. The Exchange Notes will evidence the same
indebtedness as the Private Notes (which they replace) and will be entitled to
the benefits of an indenture dated as of April 13, 1998 governing the Private
Notes and the Exchange Notes (the "Indenture"). The Private Notes and the
Exchange Notes are sometimes referred to herein collectively as the "Notes." See
"The Exchange Offer" and "Description of Exchange Notes."

The Exchange Notes will bear interest at the same rate and on the same terms
as the Private Notes. Consequently, the Exchange Notes will be issued at a
substantial discount to their principal amount at maturity. The Exchange Notes
will accrete in value from and including the date of issuance of the Private
Notes (April 13, 1998) until April 15, 2003 at which time they will have an
aggregate principal amount of $470.0 million. Thereafter, cash interest will
accrue on the Exchange Notes and will be payable semiannually in arrears on
April 15 and October 15, commencing October 15, 2003, at a rate of 13% per
annum.

SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE EXCHANGE NOTES.

(CONTINUED ON NEXT PAGE)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

------------------------
<PAGE>
INSIDE FRONT COVER
------------------------

Two maps are depicted under the caption 'Initial Network Clusters Southern
California Region.' The smaller map depicts a portion of four western states
with a small square marking the boundaries of the larger more detailed map. The
larger map depicts the location of the Company's three initial network clusters
in Southern California.

[FIRSTWORLD LOGO]

INSIDE FRONT COVER
------------------------

[FIRSTWORLD LOGO]
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)

No cash interest will accrue or be payable in respect of the Exchange Notes
prior to April 15, 2003. Thereafter, interest will accrue at the rate of 13% per
annum, payable semiannually in arrears on each April 15 and October 15,
commencing on April 15, 2003. The Private Notes accepted for exchange will
continue to accrete in principal amount at the rate of 13% per annum to, but
excluding, the issuance date of the Exchange Notes and will cease to accrete in
principal amount upon cancellation of the Private Notes and issuance of the
Exchange Notes. Any Private Notes not tendered or accepted for exchange will
continue to accrete in principal amount at the rate of 13% per annum in
accordance with its terms. The Accreted Value of the Exchange Notes will equal
the Accreted Value of the Private Notes accepted for exchange immediately prior
to issuance of the Exchange Notes.

The Notes will be redeemable at the option of the Company, in whole or in
part, on or after April 15, 2003, at the redemption prices set forth herein,
plus accrued and unpaid interest thereon, if any, to the date of redemption. If
less than all of the Exchange Notes are to be redeemed at any time, selection of
Exchange Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Exchange Notes are listed or, if the Exchange Notes are not so listed, on a pro
rata basis, by lot or by such method as the Trustee shall deem fair and
appropriate; PROVIDED that no Exchange Notes of $1,000 or less shall be redeemed
in part. Upon the occurrence of a Change of Control (as defined), holders of the
Exchange Notes will have the right to require the Company to repurchase their
Exchange Notes, in whole or in part, at a purchase price equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest and Special
Interest (as defined), if any, thereon to the date of repurchase. The Company's
ability to pay cash to the holders of Exchange Notes upon a repurchase may be
limited by the Company's then existing financial resources. See "Description of
Exchange Notes--Repurchase at the Option of Holders--Change of Control."

The Company will accept for exchange any and all validly tendered Private
Notes not withdrawn prior to 5:00 p.m. New York City time, on November 9, 1998,
unless the Exchange Offer is extended by the Company in its sole discretion (the
"Expiration Date"). Tenders of Private Notes may be withdrawn at any time prior
to the Expiration Date. Private Notes may be tendered only in integral multiples
of $1,000. The Exchange Offer is not conditioned upon any minimum amount of
Private Notes being tendered for exchange. However, the Exchange Offer is
subject to certain customary conditions. See "The Exchange Offer--Conditions."
In the event the Company terminates the Exchange Offer and does not accept for
exchange any Private Notes, the Company will promptly return the Private Notes
to the holders thereof. The Company will not receive any proceeds from the
Exchange Offer. See "The Exchange Offer."

Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties (See e.g. EXXON CAPITAL HOLDINGS CORP., SEC No-Action Letter (available
April 13, 1989) and MORGAN STANLEY & CO. INC., SEC No-Action Letter (available
June 5, 1991) collectively, the "No-Action Letters"), the Company believes that
the Exchange Notes issued

(CONTINUED ON NEXT PAGE)

i
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)

pursuant to the Exchange Offer in exchange for Private Notes may be offered for
resale, resold and otherwise transferred by a holder thereof (other than (i) a
broker-dealer who purchases such Exchange Notes directly from the Company to
resell pursuant to Rule 144A or any other available exemption under the
Securities Act or (ii) a person that is an affiliate of the Company within the
meaning of Rule 405 under the Securities Act), without compliance with the
registration and prospectus delivery provisions of the Securities Act; PROVIDED
that the holder is acquiring the Exchange Notes in the ordinary course of its
business and is not participating, and had no arrangement or understanding with
any person to participate, in the distribution of the Exchange Notes. Holders
who tender their Private Notes in the Exchange Offer with the intention of
participating in a distribution of the Exchange Notes will not be able to rely
on the No-Action Letters or similar no-action letters. Holders of Private Notes
wishing to accept the Exchange Offer must represent to the Company, as required
by the Registration Rights Agreement, that such conditions have been met. Each
broker-dealer that receives Exchange Notes for its own account in exchange for
Private Notes, where such Private Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. The Company believes that none of the registered holders of the Private
Notes is an affiliate (as such term is defined in Rule 405 under the Securities
Act) of the Company.

Prior to the Exchange Offer, there has been no public market for the Notes.
The Company does not intend to list the Exchange Notes on any securities
exchange, but the Private Notes are eligible for trading in the National
Association of Securities Dealers, Inc.'s Private Offerings, Resales and Trading
through Automatic Linkages (PORTAL) market. There can be no assurance that an
active market for the Notes will develop. To the extent that a market for the
Notes does develop, the market value of the Notes will depend on market
conditions (such as yields on alternative investments), general economic
conditions, the Company's financial condition and certain other factors. Such
conditions might cause the Notes, to the extent that they are traded, to trade
at a significant discount from face value. See "Risk Factors--Absence of Public
Market; Restrictions on Transfer."

Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Private Notes where such Private Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Company has agreed that, starting on the
Expiration Date and ending on the close of business one year after the
Expiration Date, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "The Exchange Offer--Resale of the
Exchange Notes" and "Plan of Distribution."

The Company will not receive any proceeds from, and has agreed to bear the
expenses of, the Exchange Offer. No underwriter is being used in connection with
this Exchange Offer. See "The Exchange Offer--Resale of the Exchange Notes."

THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF PRIVATE NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.

NO PERSON IS AUTHORIZED IN CONNECTION WITH THE EXCHANGE OFFER TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR

(CONTINUED ON NEXT PAGE)

ii
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)

MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE
ACCOMPANYING LETTER OF TRANSMITTAL, NOR ANY EXCHANGE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.

UNTIL JANUARY 6, 1999 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS IN
CONNECTION THEREWITH. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

The Exchange Notes will be available initially only in book-entry form. The
Company expects that the Exchange Notes issued pursuant to the Exchange Offer
will be issued in the form of one or more fully registered global notes that
will be deposited with, or on behalf of, The Depository Trust Company ("DTC" or
the "Depositary") and registered in its name or in the name of a nominee of the
DTC. Beneficial interests in the global note representing the Exchange Notes
will be shown on, and transfers thereof will be effected only through, records
maintained by the Depositary and its participants. After the initial issuance of
such global note, Exchange Notes in certificated form will be issued in exchange
for the global note only in accordance with the terms and conditions set forth
in the Indenture. See "The Exchange Offer--Book-Entry Transfer" and "Book Entry;
Delivery and Form."

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

THIS PROSPECTUS INCLUDES FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED
IN THIS PROSPECTUS, INCLUDING WITHOUT LIMITATION, CERTAIN STATEMENTS UNDER THE
CAPTIONS "PROSPECTUS SUMMARY," "THE COMPANY," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS" AND
LOCATED ELSEWHERE HEREIN REGARDING THE COMPANY'S FINANCIAL POSITION AND
OPERATING STRATEGY, MAY CONSTITUTE FORWARD-LOOKING STATEMENTS. ALTHOUGH THE
COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING
STATEMENTS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL
PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THE COMPANY'S EXPECTATIONS ("CAUTIONARY STATEMENTS")
INCLUDE, WITHOUT LIMITATION, THOSE DESCRIBED UNDER THE CAPTION "RISK FACTORS."

iii
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY, THE NOTES
THERETO AND THE OTHER FINANCIAL DATA CONTAINED ELSEWHERE IN THIS PROSPECTUS.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH HEREIN
UNDER THE CAPTION "RISK FACTORS" AND ARE URGED TO READ THIS PROSPECTUS IN ITS
ENTIRETY. UNLESS OTHERWISE INDICATED, REFERENCES HEREIN TO THE "COMPANY" INCLUDE
THE COMPANY AND THE COMPANY'S WHOLLY OWNED SUBSIDIARIES. SEE THE "GLOSSARY" FOR
DEFINITIONS OF CERTAIN TERMS USED IN THIS PROSPECTUS.

THE COMPANY

FirstWorld Communications, Inc. ("FirstWorld" or the "Company") is a
facilities-based integrated communications provider ("ICP") which is deploying
networks to provide telecommunications solutions to business customers in
clustered, demographically attractive second tier markets. The Company offers
"one-stop shopping" for a broad array of telecommunications services, including
local and long distance telephone service, high speed Internet access, data
connectivity, local area network ("LAN") connectivity, web hosting, video
communications and system integration services. Within its target markets, the
Company has segmented the potential business customer base and tailors its
service offerings, sales and marketing approach and network development to
provide service in a cost-effective manner to each segment. The Company believes
its regional approach allows it to best leverage its network facilities, sales
force, customer support staff and brand identity. The Company's first network
clusters will serve second tier markets surrounding metropolitan Los Angeles,
including Orange County and the San Gabriel Valley and South Bay areas of Los
Angeles County. The Company intends to selectively expand its reach into other
regional markets, both within and outside of California.

The Company began network operations in July 1997 and began providing
services to commercial customers in November 1997. As of July 31, 1998, the
Company had approximately 100 commercial customers under contract. The City of
Anaheim, the Company's most significant customer, relies on the Company to
supply local dialtone, long distance, dedicated facilities and Internet service
to substantially all of its municipal facilities.

FirstWorld has designed and implemented an advanced and reliable fiber-based
network. Central to the Company's network design is its state-of-the-art
integrated voice and data central office service platform, which allows the
Company to integrate third-party systems and the Company's operational support
systems into a unified network. The Company believes its networks also are
capable of providing server-based applications, such as virtual LANs and
e-commerce, and will be compatible with voice over Internet technologies as such
technologies are refined in the industry. The Company has designed business
processes to simplify provisioning, billing, network management and customer
service and has incorporated operational support systems that implement such
processes into its networks. Among other things, the Company has designed its
systems to allow the Company to provide single-point-of-contact customer service
and to facilitate electronic exchanges of information with the incumbent local
exchange carrier ("ILEC") when possible.

The Company employs a demand-driven approach to network construction. This
approach is intended to minimize deployment of capital not associated with
customer revenues and maximize flexibility to serve the higher margin data
market as demand for high speed data communication services grows. The Company
connects customers to its networks through direct fiber connections, digital
subscriber line ("DSL") technology or unbundled network elements licensed from
the ILEC, depending on the most cost-effective connection that will support the
bundle of services provided to the customer. The Company generally requires
customers that are connected by fiber to sign long-term contracts to offset the
cost of capital deployed.

The Company believes that the market segments within its target markets have
different customer buying patterns, are subject to different competitive factors
and can best be served by different sales and marketing initiatives. For prime
commercial customers (businesses with sophisticated communications needs), the
Company utilizes a consultative selling approach that involves a systematic
assessment of each

1
<PAGE>
customer's telephony, Internet, data communications and video applications
needs. For basic commercial customers (businesses with primarily voice and
Internet needs), the Company uses direct mail, telemarketing and advertising and
offers standardized product bundles consisting of local and long distance
telephony and high speed Internet access. The Company also offers use of its
network capabilities on a wholesale basis to other local exchange carriers,
including competitive local exchange carriers ("CLECs"), interexchange carriers
("IXCs"), Internet service providers ("ISPs") and other communications
providers.

The Company uses strategic relationships with municipalities, property
developers, service providers and others that provide the Company with brand
identity, physical assets, new products or technologies, joint marketing
synergies or other support. The Company believes its existing relationships with
the City of Anaheim, The Irvine Company and Enron provide the Company with
significant advantages in marketing and network deployment.

The Company's largest stockholders are entities controlled by Donald L.
Sturm, former Vice Chairman of Peter Kiewit Sons' Inc., the founder of MFS
Communications Company, Inc. ("MFS Communications"), and Enron Capital & Trade
Resources Corp. ("Enron"), a subsidiary of Enron Corp., one of the world's
leading integrated natural gas and electricity companies. To date, these
stockholders have provided $55 million of the $67 million in equity capital
received by the Company. The Company and Enron have an informal collaborative
relationship to jointly market telecommunications and utility services which the
Company believes can provide it with access to new markets, sales synergies and
product development opportunities.

The Company has assembled a management team with extensive experience in
telecommunications network engineering and operations, customer care, sales and
marketing, project development and finance. Donald L. Sturm, the Company's
Chairman, President and Chief Executive Officer, has extensive experience in the
telecommunications industry. Many of the other members of the management team
have prior telecommunications industry experience, including prior positions at
Pacific Bell, WorldCom, Inc. ("WorldCom"), Sprint Communications Company, L.P.
("Sprint") and other major telecommunications providers. The Company believes
the skill and experience of its management team will continue to provide
significant benefits as the Company continues to enhance and expand its
networks.

The Company's principal executive offices are located at 9333 Genesee
Avenue, Suite 200, San Diego, California 92121, and its phone number is (619)
552-8010. In January 1998, the Company changed its name from SpectraNet
International to FirstWorld Communications, Inc. In June 1998, the Company
changed its state of incorporation from California to Delaware.

RISK FACTORS

Prospective investors should carefully consider all of the information set
forth in this Prospectus and, in particular, should evaluate the specific risk
factors set forth under the caption "Risk Factors," beginning on page 10, for a
discussion of certain risks involved with an investment in the Exchange Notes
including, without limitation, those risks associated with the Company's (i)
limited history of operations, (ii) history of operating losses, (iii)
substantial leverage and ability to service its indebtedness (including the
Notes), (iv) ability to manage future growth, (v) dependence upon its network
infrastructure and (vi) reliance on third parties for access to telephony
services.

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

The statements contained in this Prospectus which are not historical facts
are forward-looking statements that involve risks and uncertainties. The Company
wishes to caution the reader that these forward-looking statements, such as
those relating to the Company's plans to expand its network coverage to most of
Orange County and the San Gabriel Valley and South Bay areas of Los Angeles
County, and beyond, and to add voice over Internet services, managed desk-top
services and other advanced broadband services to its integrated package of
services are only predictions; actual events or results may differ materially as
a result of risks facing the Company or other external events or due to
decisions made by the Company in the future. See "Risk Factors."

2
<PAGE>
THE EXCHANGE OFFER

<TABLE>
<CAPTION>
THE EXCHANGE OFFER.................... The Company is offering to exchange $1,000 principal amount of
Exchange Notes for each $1,000 principal amount of Private
Notes that are properly tendered and accepted. The Company
will issue Exchange Notes on or promptly after the Expiration
Date (as defined). As of July 31, 1998, $470,000,000 in
aggregate principal amount at maturity of Private Notes were
outstanding. See "The Exchange Offer--Purpose of the Exchange
Offer."

<S> <C>
Based on an interpretation by the staff of the Commission set
forth in no-action letters issued to third parties, the
Company believes that the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Private Notes may be
offered for resale, resold and otherwise transferred by a
holder thereof (other than (i) a broker-dealer who purchases
such Exchange Notes directly from the Company to resell
pursuant to Rule 144A or any other available exemption under
the Securities Act or (ii) a person that is an affiliate of
the Company within the meaning of Rule 405 under the
Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act; PROVIDED
that the holder is acquiring Exchange Notes in the ordinary
course of its business and is not participating, and had no
arrangement or understanding with any person to participate,
in the distribution of the Exchange Notes. Each broker-dealer
that receives Exchange Notes for its own account in exchange
for Private Notes, where such Private Notes were acquired by
such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of such
Exchange Notes. See "The Exchange Offer--Resale of the
Exchange Notes" and "Plan of Distribution."

REGISTRATION RIGHTS AGREEMENT......... The Private Notes were sold by the Company on April 13, 1998
to Bear, Stearns & Co. Inc., ING Baring (U.S.) Securities,
Inc., J.P. Morgan Securities Inc. and Merrill Lynch, Pierce,
Fenner & Smith Incorporated (collectively, the "Initial
Purchasers") pursuant to a Purchase Agreement, dated April 6,
1998, by and among the Company and the Initial Purchasers (the
"Purchase Agreement"). Pursuant to the Purchase Agreement, the
Company and the Initial Purchasers entered into a Registration
Rights Agreement, dated as of April 13, 1998 (the
"Registration Rights Agreement"), which grants the holders of
the Private Notes certain exchange and registration rights.
The Exchange Offer is intended to satisfy such rights, which
will terminate upon the consummation of the Exchange Offer.
See "The Exchange Offer--Termination of Certain Rights."

EXPIRATION DATE....................... The Exchange Offer will expire at 5:00 p.m. New York City
time, on November 9, 1998, unless the Exchange Offer is
extended by the Company in its sole discretion, in which case
the term "Expiration Date" shall mean the latest date and time
to which the Exchange Offer is extended. See "The Exchange
Offer-- Expiration Date; Extensions; Amendments."
</TABLE>

3
<PAGE>

<TABLE>
<S> <C>
ACCRETION OF THE EXCHANGE NOTES AND
THE PRIVATE NOTES................... No cash interest will accrue or be payable in respect of the
Exchange Notes prior to April 15, 2003. Thereafter, interest
will accrue at the rate of 13% per annum, payable semiannually
in arrears on each April 15 and October 15, commencing on
October 15, 2003. The Private Notes accepted for exchange will
continue to accrete in principal amount at the rate of 13% per
annum to, but excluding, the issuance date of the Exchange
Notes and will cease to accrete in principal amount upon
cancellation of the Private Notes and issuance of the Exchange
Notes. Any Private Notes not tendered or accepted for exchange
will continue to accrete in principal amount at the rate of
13% per annum in accordance with its terms. The Accreted Value
of the Exchange Notes will equal the Accreted Value of the
Private Notes accepted for exchange immediately prior to
issuance of the Exchange Notes.

CONDITIONS TO THE EXCHANGE OFFER...... The Exchange Offer is subject to certain customary conditions
that may be waived by the Company. The Exchange Offer is not
conditioned upon any minimum aggregate principal amount at
maturity of Private Notes being tendered for exchange. See
"The Exchange Offer--Conditions."

PROCEDURES FOR TENDERING PRIVATE
NOTES............................... Each holder of Private Notes wishing to accept the Exchange
Offer must complete, sign and date the Letter of Transmittal,
or a facsimile thereof, in accordance with the instructions
contained herein and therein, and mail or otherwise deliver
such Letter of Transmittal, or such facsimile, together with
such Private Notes and any other required documentation to The
Bank of New York, as exchange agent (the "Exchange Agent"), at
the address set forth herein. By executing the Letter of
Transmittal, the holder will represent to and agree with the
Company that, among other things, (i) the Exchange Notes to be
acquired by such holder of Private Notes in connection with
the Exchange Offer are being acquired by such holder in the
ordinary course of its business, (ii) if such holder is not a
broker-dealer, such holder is not currently participating in,
does not intend to participate in, and has no arrangement or
understanding with any person to participate in a distribution
of the Exchange Notes, (iii) if such holder is a broker-dealer
registered under the Exchange Act or is participating in the
Exchange Offer for the purposes of distributing the Exchange
Notes, such holder will comply with the registration and
prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction of the Exchange
Notes acquired by such person and cannot rely on the position
of the staff of the Commission set forth in no-action letters
(see "The Exchange Offer--Resale of Exchange Notes"), (iv)
such holder understands that a secondary resale transaction
described in clause (iii) above and any resales of Exchange
Notes obtained by such holder in exchange for Private Notes
acquired by such holder directly from the Company should be
covered by an effective registration statement containing the
</TABLE>

4
<PAGE>

<TABLE>
<S> <C>
selling securityholder information required by Item 507 or
Item 508, as applicable, of Regulation S-K of the Commission
and (v) such holder is not an "affiliate," as defined in Rule
405 under the Securities Act, of the Company. If the holder is
a broker-dealer that will receive Exchange Notes for its own
account in exchange for Private Notes that were acquired as a
result of market-making activities or other trading
activities, such holder will be required to acknowledge in the
Letter of Transmittal that such holder will deliver a
prospectus in connection with any resale of such Exchange
Notes; however, by so acknowledging and by delivering a
prospectus, such holder will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. See
"The Exchange Offer--Procedures for Tendering."

SPECIAL PROCEDURES FOR BENEFICIAL
OWNERS.............................. Any beneficial owner whose Private Notes are registered in the
name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender such Private Notes in
the Exchange Offer should contact such registered holder
promptly and instruct such registered holder to tender on such
beneficial owner's behalf. If such beneficial owner wishes to
tender on such owner's own behalf, such owner must, prior to
completing and executing the Letter of Transmittal and
delivering such owner's Private Notes, either make appropriate
arrangements to register ownership of the Private Notes in
such owner's name or obtain a properly completed bond power
from the registered holder. The transfer of registered
ownership may take considerable time and may not be able to be
completed prior to the Expiration Date. See "The Exchange
Offer--Procedures for Tendering."

GUARANTEED DELIVERY PROCEDURES........ Holders of Private Notes who wish to tender their Private
Notes and whose Private Notes are not immediately available or
who cannot deliver their Private Notes, the Letter of
Transmittal or any other documentation required by the Letter
of Transmittal to the Exchange Agent prior to the Expiration
Date must tender their Private Notes according to the
guaranteed delivery procedures set forth under "The Exchange
Offer--Guaranteed Delivery Procedures."

ACCEPTANCE OF THE PRIVATE NOTES AND
DELIVERY OF THE EXCHANGE NOTES...... Subject to the satisfaction or waiver of the conditions to the
Exchange Offer, the Company will accept for exchange any and
all Private Notes that are properly tendered in the Exchange
Offer prior to the Expiration Date. The Exchange Notes issued
pursuant to the Exchange Offer will be delivered on the
earliest practicable date following the Expiration Date. See
"The Exchange Offer--Terms of the Exchange Offer."

WITHDRAWAL RIGHTS..................... Tenders of Private Notes may be withdrawn at any time prior to
the Expiration Date. See "The Exchange Offer--Withdrawal of
Tenders."

CERTAIN UNITED STATES FEDERAL INCOME
TAX CONSIDERATIONS.................. For a discussion of certain material federal income tax
</TABLE>

5
<PAGE>

<TABLE>
<S> <C>
considerations relating to the exchange of the Exchange Notes
for the Private Notes, see "Certain United States Federal
Income Tax Considerations."

EXCHANGE AGENT........................ The Bank of New York is serving as the Exchange Agent in
connection with the Exchange Offer.
</TABLE>

THE EXCHANGE NOTES

The Exchange Offer applies to up to $470,000,000 in aggregate principal
amount at maturity of the Private Notes. The form and terms of the Exchange
Notes are the same as the form and terms of the Private Notes except that (i)
the exchange will have been registered under the Securities Act and, therefore,
the Exchange Notes will not bear legends restricting the transfer thereof and
(ii) holders of the Exchange Notes will not be entitled to certain rights of
holders of the Private Notes under the Registration Rights Agreement, which
rights will terminate upon consummation of the Exchange Offer. The Exchange
Notes will evidence the same debt as the Private Notes (which they replace) and
will be issued under, and be entitled to the benefits of, the Indenture. For
further information and for definitions of certain capitalized terms used below,
see "Description of Exchange Notes."

<TABLE>
<CAPTION>
<S> <C>
SECURITIES OFFERED........................ $470,000,000 in aggregate principal amount at maturity of 13% Senior
Discount Notes due 2008.

MATURITY.................................. April 15, 2008.

INTEREST.................................. The Exchange Notes will be issued at a substantial discount to their
principal amount at maturity, and will accrete in value through April
15, 2003 (the "Full Accretion Date") at a rate of 13% per annum,
compounded semi-annually. Cash interest will neither accrue nor be
payable on the Exchange Notes prior to the Full Accretion Date.
Thereafter, the Exchange Notes will bear interest at the rate of 13%
per annum, payable in cash semi-annually in arrears on April 15 and
October 15 commencing October 15, 2003.

ORIGINAL ISSUE DISCOUNT................... For United States federal income tax purposes, an Exchange Note
received pursuant to the Exchange Offer will be treated as a
continuation of the Private Note in the hands of a holder. As a
result, such holder will have the same adjusted tax basis, holding
period and original issue discount in the Exchange Note as it had in
the Private Note immediately before the exchange. See "Certain United
States Federal Income Tax Considerations."

RANKING................................... The Exchange Notes will be senior obligations of the Company, will
rank PARI PASSU in right of payment with all existing and future
senior Indebtedness of the Company and will rank senior in right of
payment to any future Subordinated Indebtedness of the Company, but
will be effectively subordinated to any secured Indebtedness of the
Company and future Indebtedness and other liabilities (including
Subordinated Indebtedness and trade payables) of the Company's
Subsidiaries. The Indenture will permit the incurrence of substantial
additional Indebtedness, including secured Indebtedness, by the
Company and its Subsidiaries, subject to certain restrictions. See
"Risk Factors-- Effective Subordination of Notes; Holding Company
Structure."
</TABLE>

6
<PAGE>

<TABLE>
<S> <C>
As of June 30, 1998, the Company had no Subordinated Indebtedness and
$7.1 million in outstanding Indebtedness that ranks PARI PASSU with
the Notes.

SINKING FUND.............................. None.

OPTIONAL REDEMPTION....................... The Exchange Notes may be redeemed at the option of the Company, in
whole or in part, at any time on or after April 15, 2003, at a
premium declining to par on April 15, 2006, plus accrued and unpaid
interest through the redemption date.

In addition, at any time prior to or on April 15, 2001, the Company
may redeem up to 35% of the Accreted Value of the Notes at a
redemption price of 113% of the Accreted Value thereof at the time of
redemption, with the net cash proceeds of one or more Public Equity
Offerings (as defined) or the sale of Capital Stock (as defined) to
one or more Strategic Investors (as defined); PROVIDED, HOWEVER, that
Notes representing at least 65% of the Accreted Value of the Notes
originally issued remain outstanding immediately after the occurrence
of such redemption.

CHANGE OF CONTROL......................... In the event of a Change of Control, the holders of the Exchange
Notes will have the right to require the Company to purchase the
Exchange Notes at a price equal to 101% of the aggregate principal
amount or Accreted Value thereof, as applicable, plus accrued and
unpaid interest to the date of purchase. There can be no assurance
that the Company will have the financial resources necessary to
repurchase the Exchange Notes upon a Change of Control.

CERTAIN COVENANTS......................... The Indenture contains certain covenants that, among other things,
limit the ability of the Company and its Restricted Subsidiaries (as
defined) to make certain restricted payments, incur additional
Indebtedness (as defined), pay dividends or make other distributions,
repurchase equity interests or subordinated indebtedness, engage in
sale or leaseback transactions, create certain liens, enter into
certain transactions with affiliates, sell assets of the Company or
its Restricted Subsidiaries, change their lines of business, issue or
sell equity interests of the Company's Restricted Subsidiaries or
enter into mergers and consolidations. In addition, under certain
circumstances, the Company will be required to offer to purchase the
Notes at a price equal to 100% of the principal amount or Accreted
Value thereof, as applicable, plus accrued and unpaid interest to the
date of purchase, with the proceeds of certain asset sales. See
"Description of Exchange Notes-- Certain Covenants."
</TABLE>

For additional information regarding the Exchange Notes, see "Description of
Exchange Notes."

7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA

The summary consolidated financial data presented below for the period from
September 1, 1993 (inception) to September 30, 1993, for the years ended
September 30, 1994, 1995, 1996 and 1997, for the period from September 1, 1993
(inception) to September 30, 1997, and as of September 30, 1997 have been
derived from the audited consolidated financial statements of the Company. The
summary consolidated financial data presented below as of June 30, 1998 and for
the nine month periods ended June 30, 1997 and 1998 and the period from
September 1, 1993 (inception) to June 30, 1998 have been derived from the
unaudited consolidated financial statements of the Company. In the opinion of
management, the unaudited financial statements have been prepared on the same
basis as the audited financial statements and include all adjustments, which
consist only of normal recurring adjustments, necessary for a fair presentation
of the financial position and the results of operations for these periods. These
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States which may differ in certain aspects from
accounting principles generally accepted in certain of the jurisdictions in
which the Exchange Notes are being offered. Operating results for the nine month
period ended June 30, 1998 are not necessarily indicative of the results that
may be expected for the full year ending September 30, 1998. The data below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements of the Company and notes thereto.
<TABLE>
<CAPTION>
PERIOD FROM
PERIOD FROM SEPTEMBER 1,
SEPTEMBER 1, 1993
1993 YEAR ENDED (INCEPTION)
(INCEPTION) TO SEPTEMBER 30, TO
SEPTEMBER 30, ------------------------------------------ SEPTEMBER
1993 1994 1995 1996 1997 30, 1997
--------------- --------- --------- --------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Service revenue................................... $ -- $ 85 $ 57 $ 279 $ 75 $ 496
Other revenue..................................... -- 40 75 96 211
Costs and expenses:
Network development and operations.............. -- -- 188 1,708 3,170 5,067
Selling, general and administrative............. 23 429 740 2,409 4,725 8,325
Depreciation and amortization................... -- 21 39 75 501 637
--- --------- --------- --------- --------- ------------
Loss from operations.............................. (23) (365) (870) (3,838) (8,225) (13,322)
Other income (expense):
Interest expense................................ -- (53) (38) (27) (1,372) (1,489)
Interest income................................. -- -- -- 9 149 158
--- --------- --------- --------- --------- ------------
Loss before extraordinary item.................... (23) (418) (908) (3,856) (9,448) (14,653)
Extraordinary item--extinguishment of debt........ -- -- -- -- (105) (105)
--- --------- --------- --------- --------- ------------
Net loss.......................................... $ (23) $ (418) $ (908) $ (3,856) $ (9,553) $ (14,758)
--- --------- --------- --------- --------- ------------
--- --------- --------- --------- --------- ------------
OTHER DATA:
EBITDA(1)......................................... $ (23) $ (344) $ (831) $ (3,763) $ (7,829) $ (12,790)
Net cash provided by (used in) operating
activities...................................... 3 (416) (781) (2,168) (7,446) (10,808)
Net cash used in investing activities............. -- 18 45 923 12,647 13,633
Net cash provided by financing activities......... 10 425 827 3,156 20,557 24,976
Capital expenditures.............................. -- 6 25 908 12,637 13,576
Deficiency of earnings to cover fixed
charges(2)...................................... 23 418 908 3,856 9,500 14,705

<CAPTION>
PERIOD FROM
SEPTEMBER 1,
1993
NINE MONTHS (INCEPTION)
ENDED JUNE 30, TO
----------------------- JUNE 30,
1997 1998 1998
--------- ------------ ------------

<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Service revenue................................... $ -- $ 649 $ 1,145
Other revenue..................................... 114 10 221
Costs and expenses:
Network development and operations.............. 3,186 5,497 10,564
Selling, general and administrative............. 2,806 4,756 13,081
Depreciation and amortization................... 393 1,841 2,478
--------- ------------ ------------
Loss from operations.............................. (6,271) (11,435) (24,757)
Other income (expense):
Interest expense................................ (242) (11,072) (12,561)
Interest income................................. 144 3,247 3,405
--------- ------------ ------------
Loss before extraordinary item.................... (6,369) (19,260) (33,913)
Extraordinary item--extinguishment of debt........ -- (4,730) (4,835)
--------- ------------ ------------
Net loss.......................................... $ (6,369) $ (23,990) $ (38,748)
--------- ------------ ------------
--------- ------------ ------------
OTHER DATA:
EBITDA(1)......................................... $ (5,878) $ (14,324) $ (27,114)
Net cash provided by (used in) operating
activities...................................... (5,783) (10,754) (21,562)
Net cash used in investing activities............. (5,918) (157,737) (171,369)
Net cash provided by financing activities......... 11,922 273,576 298,552
Capital expenditures.............................. 5,918 12,311 25,887
Deficiency of earnings to cover fixed
charges(2)...................................... 6,369 19,478 34,182
</TABLE>

8
<PAGE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 JUNE 30, 1998
------------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................................................... $ 536 $ 105,622
Working capital (deficit)...................................................... (3,319) 248,991
Total assets................................................................... 25,321 286,053
Long-term debt................................................................. 18,964 242,352
Total stockholders' equity..................................................... 2,265 38,716
</TABLE>

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

(1) EBITDA represents earnings before interest, income taxes, depreciation and
amortization. EBITDA is not a measurement of financial performance under
generally accepted accounting principles, is not intended to represent cash
flow from operations, and should not be considered as an alternative to net
loss as an indicator of the Company's operating performance or to cash flows
as a measure of liquidity. The Company believes that EBITDA is widely used
by analysts, investors and other interested parties in the
telecommunications industry. The Company's computation of EBITDA may not be
comparable to similarly titled measures for other companies.

(2) For purposes of calculating the ratio of earnings to fixed charges, earnings
is defined as net loss plus fixed charges (other than capitalized interest).
Fixed charges consist of interest and amortization of debt discount and debt
issuance costs, whether expensed or capitalized, and that portion of rental
expense deemed to represent interest (estimated to be one-third of such
expense). For the periods presented, earnings were insufficient to cover
fixed charges by the amounts disclosed.

9
<PAGE>
RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS,
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER ALL OF THE INFORMATION CONTAINED
IN THIS PROSPECTUS AND, IN PARTICULAR, SHOULD EVALUATE THE FOLLOWING RISK
FACTORS. CERTAIN STATEMENTS IN THIS PROSPECTUS THAT ARE NOT HISTORICAL FACT
CONSTITUTE "FORWARD-LOOKING STATEMENTS." SUCH FORWARD-LOOKING STATEMENTS INVOLVE
KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE THE
ACTUAL RESULTS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM RESULTS EXPRESSED
OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH RISKS, UNCERTAINTIES AND
OTHER FACTORS INCLUDE, BUT ARE NOT LIMITED TO, THE FOLLOWING FACTORS.

FAILURE TO EXCHANGE PRIVATE NOTES

The Exchange Notes will be issued in exchange for Private Notes only after
timely receipt by the Exchange Agent of such Private Notes, a properly completed
and duly executed Letter of Transmittal and all other required documentation.
Therefore, holders of Private Notes desiring to tender such Private Notes in
exchange for Exchange Notes should allow sufficient time to ensure timely
delivery. Neither the Exchange Agent nor the Company is under any duty to give
notification of defects or irregularities with respect to tenders of Private
Notes for exchange. Private Notes that are not tendered or are tendered but not
accepted will, following consummation of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer thereof. In addition, any
holder of Private Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes will be required to comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Private Notes, where such
Private Notes were acquired by such broker-dealer as a result of market-making
activities or any other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. To
the extent that Private Notes are tendered and accepted in the Exchange Offer,
the trading market for untendered and tendered but unaccepted Private Notes
could be adversely affected due to the limited amount, or "float," of the
Private Notes that are expected to remain outstanding following the Exchange
Offer. Generally, a lower "float" of a security could result in less demand to
purchase such security and could, therefore, result in lower prices for such
security. For the same reason, to the extent that a large amount of Private
Notes are not tendered or are tendered and not accepted in the Exchange Offer,
the trading market for the Exchange Notes could be adversely affected. See "Plan
of Distribution" and "The Exchange Offer."

LIMITED HISTORY OF OPERATIONS; NEGATIVE CASH FLOW AND OPERATING LOSSES

The Company was incorporated in July 1992, commenced operations in September
1993 and commenced commercial operation of its current network business in
November 1997. The Company has provided services to customers for slightly more
than one year, and as of July 31, 1998 had approximately 100 commercial
customers under contract. The Company has generated substantial operating losses
and negative cash flow from operating activities since its inception and expects
that operating and net losses and negative operating cash flow will continue for
at least the next several years and will increase significantly as the Company
implements its growth strategy of expanding into other cities. To date, the
Company has focused primarily on the development of its product line, the
development and construction of its networks, the hiring of management and other
key personnel, the raising of capital, the acquisition of equipment, the
implementation of its sales and marketing strategy and the development of
operating systems. Accordingly, potential investors have limited operating and
financial data about the Company upon which to base an evaluation of the
Company's performance and an investment in the Exchange Notes offered hereby.
The Company has a very limited operating history upon which to base estimates of
the number of customers, the reliability of its network or the amount of
revenues the Company's current and planned operations will generate. Given the
Company's limited operating history, there can be no assurance that it will be
able to achieve its goals, generate sufficient positive cash flows to make
principal

10
<PAGE>
and interest payments on its indebtedness, including the Notes, or compete
successfully in the telecommunications industry.

The Company's prospects must be considered in light of the risks, expenses
and difficulties frequently encountered by companies in new and rapidly evolving
markets. To address these risks, the Company must, among other things, attract
and retain customers, increase awareness of the Company's services, respond to
competitive developments, continue to attract, retain and motivate qualified
persons and continue to upgrade its technologies and commercialize its network
services incorporating such technologies. There can be no assurance that the
Company will be successful in addressing such risks and the failure to do so
could have a material adverse effect on the Company's business, financial
condition and results of operations and the Company's ability to make principal
and interest payments on its indebtedness, including the Notes. The Company's
business strategy is unproved and, to be successful, the Company must, among
other things, develop and market services that are widely accepted by customers
at prices that will yield a profit. There can be no assurance that the Company
and its services will achieve broad customer or commercial acceptance when
compared to alternative telecommunications services. Given the dynamic nature of
the marketplace for telecommunications services, the prices the Company charges
for some or all of its services may from time to time be higher than those
charged by providers for some competing services, although the Company is not
aware of any specific type of service that it currently prices higher than its
competitors. Additionally, prices for telecommunications services have fallen
historically, and prices in the industry in general, and for the services the
Company offers and plans to offer in particular, are expected to continue to
fall. Accordingly, it is difficult to predict whether the Company's pricing
model will prove to be viable, whether demand for the Company's services will
materialize at the prices it expects to charge or whether current or future
pricing levels will be sustainable. The failure to achieve or sustain projected
pricing levels or to achieve or sustain broad market acceptance could result in
a material adverse effect on the Company's business, financial condition and
results of operations and the Company's ability to make principal and interest
payments on its indebtedness, including the Notes. Because of the foregoing
factors, among others, the Company may not be able to forecast its revenues or
the rate at which it will add new customers or end-users with any degree of
accuracy. The Company's annual and quarterly operating results may fluctuate
significantly in the future as a result of numerous factors, many of which are
outside the Company's control. Factors that may affect the Company's operating
results include the amount and timing of capital expenditures and other costs
relating to the expansion of the Company's network, the introduction of new
services by the Company or its competitors, price competition by competitors,
technical difficulties or network downtime, general economic conditions and
economic conditions specific to the Company's industry.

The development of the Company's business and the deployment of its services
and systems will require significant additional capital expenditures, a
substantial portion of which will need to be incurred before the realization of
significant revenues. Together with associated start-up operating expenses,
these capital expenditures will result in substantial negative cash flow until
an adequate revenue-generating customer base is established. The Company has
incurred net losses in each quarter since it commenced operations in September
1993, with cumulative losses totaling approximately $39.0 million through June
30, 1998. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The Company expects to continue to generate significant
operating and net losses for at least the next several years. There can be no
assurance that the Company will achieve or sustain profitability or generate
sufficient positive cash flow to meet its working capital requirements or make
principal and interest payments on its indebtedness, including the Notes. See
"--Substantial Leverage; Ability to Service Indebtedness."

SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS

The Company will be highly leveraged following the Exchange Offer. As of
June 30, 1998, the Company had approximately $243.2 million of outstanding
indebtedness, the Company's total debt as a

11
<PAGE>
percentage of capitalization was approximately 86% as of June 30, 1998 and the
Company had a deficiency of earnings to fixed charges of $19.4 million for the
nine months ended June 30, 1998. See "Capitalization," "Selected Consolidated
Financial Data" and "Certain Transactions." The Company's high degree of
leverage could have material and adverse consequences, including, but not
limited to, the following: (i) a substantial portion of the Company's sources of
capital and cash flow from operations must be dedicated to debt service
payments, thereby reducing the funds available to the Company for other
purposes; (ii) the Company's ability to obtain additional debt financing in the
future for working capital, capital expenditures, acquisitions, repayment of
indebtedness or other purposes may be impaired, whether as a result of the
covenants and other terms of its debt instruments or otherwise; (iii) the
Company will be substantially more leveraged than certain of its competitors,
which may place the Company at a competitive disadvantage; (iv) the Company's
high degree of leverage may limit its ability to expand capacity and otherwise
meet its growth objectives; and (v) the Company's high degree of leverage may
hinder its ability to adjust rapidly to changing market conditions and could
make it more vulnerable than its less leveraged competitors in the event of a
downturn in general economic conditions or its business. In addition, the
Indenture permits the incurrence of additional indebtedness under certain
conditions, and the Company expects that as it expands its networks beyond the
Orange County, San Gabriel Valley and South Bay areas, its capital requirements
will require it to secure additional financing, including additional
indebtedness. See "--Significant Capital Requirements."

The Company's ability to make principal and interest payments on the Notes
will depend upon, among other things, its ability to complete the roll-out of
its networks on a timely and cost-effective basis, the market acceptance of, and
the utilization, pricing and consumer demand for its services, its future
operating performance and cash flow and its ability to obtain additional debt or
equity financing, which are themselves dependent upon a number of economic,
financial, competitive and regulatory conditions and other factors, many of
which the Company is unable to control. There can be no assurance that the
Company will have adequate sources of liquidity to make required payments of
principal and interest on its indebtedness (including the Notes), whether at or
prior to maturity, to finance anticipated capital expenditures and to fund
working capital requirements. If the Company does not have sufficient available
resources to repay its outstanding indebtedness when it becomes due and payable,
the Company may find it necessary to refinance such indebtedness, and there can
be no assurance that refinancing will be available or that it will be available
on favorable terms. Any failure by the Company to satisfy its obligations with
respect to its indebtedness at maturity or prior thereto would constitute a
default under such indebtedness and could cause a default under agreements
governing other indebtedness, if any, of the Company. Such defaults could result
in a default under the Indenture and could delay or preclude payment of interest
or principal on the Notes.

BUSINESS DEVELOPMENT AND EXPANSION RISKS; POSSIBLE INABILITY TO MANAGE GROWTH

The Company's business plan will, if successfully implemented, result in
rapid expansion of its operations. Rapid expansion of the Company's operations
may place a significant strain on the Company's management, financial and other
resources. The Company's ability to manage future growth, should it occur, will
depend upon its ability to attract, train, assimilate and retain additional
qualified personnel, to monitor operations, control costs, maintain regulatory
compliance, maintain effective quality controls and significantly expand the
Company's internal management, technical, information and accounting systems.
There can be no assurance that the Company will successfully implement and
maintain such operational and financial systems or that it will successfully
obtain, integrate and utilize the management, operational and financial
resources necessary to manage a developing and expanding business in an
evolving, highly regulated and increasingly competitive industry. Any failure to
expand these areas and to implement and improve such systems, procedures and
controls in an efficient manner at a pace consistent with the growth of the
Company's business could have a material adverse effect on the business,
financial condition and results of operations of the Company and the ability of
the Company to make principal and interest payments on its indebtedness,
including the Notes.

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If the Company were unable to hire and train staff, purchase adequate
supplies of equipment, increase the capacity of its operational and accounting
information systems or successfully manage and integrate such additional
resources, customers could experience delays in connection of service and lower
levels of customer service. Failure by the Company to meet the demands of
customers and to manage the expansion of its business and operations could have
a material adverse effect on the Company's business, financial condition and
results of operations and the Company's ability to make principal and interest
payments on its indebtedness, including the Notes.

DEPENDENCE UPON NETWORK INFRASTRUCTURE

The Company's success will depend upon the capacity, reliability and
security of its networks. The Company expects that a substantial portion of its
future revenues will be derived from the provision of tailored value-added
network services to its customers. The Company must continue to expand and adapt
its network infrastructure as the number of users and the amount of information
they wish to transfer increase and as customer requirements change. There can be
no assurance that the Company will be able to expand or adapt its network
infrastructure to meet additional demand or its customers' changing requirements
on a timely basis, at a commercially reasonable cost, or at all. Any failure of
the Company to expand its network infrastructure on a timely basis or adapt it
to either changing customer requirements or evolving industry standards could
have a material adverse effect on the Company's business, financial condition
and results of operations and the ability of the Company to make principal and
interest payments on its indebtedness, including the Notes.

The backbone of the Company's network within Anaheim, California is a
50-mile fiber loop owned by the City of Anaheim and leased and operated by the
Company. Under an Agreement For Use of Operating Property between the City of
Anaheim and FirstWorld Anaheim, a wholly owned subsidiary of the Company
("FWA"), the Company's lease of the loop is subject to termination upon
customary default provisions, including failure to pay rent within the required
time period or a breach of its other material duties or obligations thereunder.
In addition, the Universal Telecommunications System Participation Agreement (as
amended, the "UTS Agreement") among the City of Anaheim, the Company and FWA
requires FWA to complete 90% of a designated portion of the Anaheim network by
December 31, 1998, plus a 180 day cure period. The Company already has satisfied
a requirement to complete 44% of such work by April 1, 1998. If FWA fails to
meet the 90% deadline, then the City may elect to terminate the Agreement for
Use of Operating Property and the UTS Agreement, or, in the alternative,
exercise its right to purchase all of FWA's outstanding stock. See
"Business--Agreements with the City of Anaheim and The Irvine Company--The City
of Anaheim." Any termination of the Agreement for Use of Operating Property or
the UTS Agreement, or the exercise by the City of Anaheim's right to purchase
all of FWA's outstanding stock, would have a material adverse effect on the
Company's business, financial condition and results of operations and the
Company's ability to make principal and interest payments on its indebtedness,
including the Notes.

RELIANCE ON THIRD PARTIES FOR ACCESS TO TELEPHONY SERVICES

Because the Company expects to provide certain services through connections
supplied by ILECs and other providers, it is dependent upon the cooperation of
third party telecommunications providers, including certain of the Company's
major competitors, such as Pacific Bell, in providing access to their services.
The Company has entered into interconnection agreements with Pacific Bell and
GTE Corporation ("GTE"), which, among other things, establish the terms and
conditions for access to such networks for origination and termination of calls
and set pricing for unbundled network elements. The Company will need to enter
into similar agreements as it expands to areas where neither Pacific Bell nor
GTE is the ILEC. There can be no assurance that the Company will be able to
enter into additional interconnection agreements on favorable terms or at all.
Even when the Company has entered into an interconnection agreement, there can
be no assurance that the Company's orders for additional unbundled loops or
other

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services will be fulfilled in a timely manner. Failure of other parties to
interconnection agreements to maintain equipment and provide service in a
reliable and timely manner may result in interrupted service to the Company's
customers and risk of loss of business. In addition, there can be no assurance
that the rates charged to the Company under interconnection agreements will
continue to allow the Company to offer its services at competitive prices.

The Company provides long distance service, operator services, directory
assistance and calling card services under its own name pursuant to agreements
with Sprint. The Company has obtained volume discounts for a variety of services
the Company purchases from Sprint (including long distance), based on estimates
of the Company's monthly usage of such services. If the Company fails to meet
targeted usage (or in certain instances, exceeds targeted usage) the Company
must pay Sprint various monthly surcharges with respect to such services. The
most significant of these monthly surcharges relates to the required amount of
long distance service the Company purchases from Sprint. Beginning in August
1998, the Company will be required to purchase certain minimum monthly amounts
of long distance service (which minimum requirements increase over time) or pay
Sprint a penalty equal to a percentage of the Company's shortfall. To date, the
Company has not purchased in any one month the amount of long distance service
that the Company is required to purchase beginning in August 1998 nor can it be
certain when or if it will purchase such minimum amounts.

RISKS OF IMPLEMENTATION, SITES, EQUIPMENT AND SUITABLE INTERCONNECT ARRANGEMENTS

The Company intends to develop and expand the Company's business and enter
new markets as described below under the caption "Business--Network Construction
Status and Proposed Expansion." There can be no assurance the Company will be
able to complete construction in Orange County or the San Gabriel Valley and
South Bay areas of Los Angeles County on the timetable and in the manner
currently planned or that it will be able to expand to new areas in the manner
currently contemplated. The development and expansion of the Company's business
into new markets will be dependent, among other things, upon the Company's
ability to lease or purchase suitable sites for its equipment, its ability to
negotiate suitable interconnection and co-location agreements with ILECs on
satisfactory terms and conditions and its ability to finance such expansion.
Pacific Bell has engaged in lobbying at the state and local levels and through
the media aimed at discouraging telecommunications cooperation agreements
between municipalities and private companies such as the Company. Such actions
on the part of Pacific Bell, if successful, could prevent the Company from
entering into future contracts similar to its agreement with the City of
Anaheim. These factors and others could adversely affect the expansion of the
Company's customer base and commencement of operations in new markets. The
failure by the Company to expand or enter new markets in accordance with its
plans would have a material adverse effect on the Company's business, financial
condition and results of operations and the Company's ability to make principal
and interest payments on its indebtedness, including the Notes.

COMPETITION

The telecommunications services industry is highly competitive. The Company
has not obtained significant market share in any of the areas where it offers or
intends to offer services, nor does it expect to do so in the near future given
the size of the local telecommunications market, the intense competition therein
and the diversity of customer requirements. In each market area in which the
Company is authorized to provide services, the Company competes or will compete
with several other service providers and technologies. Certain bases of
competition in the Company's markets include price, performance, reliability of
service, ease of access and use, services offered, product bundling, customer
support, brand recognition and operating experience. Most of the Company's
competitors, particularly the applicable ILEC, have longer operating histories,
long-standing relationships with customers and suppliers in their respective
industries, greater name recognition and significantly greater financial,
technical and marketing resources than the Company. The Company faces intense
competition with respect to each of the services it offers. The Company cannot
predict the number of competitors that will emerge as a result of existing or
new federal and state legislative actions. See "--Regulation."

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TELEPHONY. The Company's principal telephony competitors are the ILECs in
the areas served by the Company's networks. While the Interconnection Decisions
of the Federal Communications Commission ("FCC") (as defined herein) and the
Telecommunications Act of 1996 (the "Telecommunications Act") provide increased
business opportunities to CLECs and ICPs such as the Company, they also provide
the ILECs with increased pricing flexibility for their services and other
regulatory relief, which could have a material adverse effect on CLECs and ICPs,
including the Company. If the ILECs are allowed by regulators to lower their
rates for their services, engage in substantial volume and term discount pricing
practices for their customers, or seek to charge CLECs and ICPs substantial fees
for interconnection to the ILECs' networks, the results of operations of CLECs
and ICPs, including the Company, could be materially adversely affected.

The legal framework governing competition in telephony has been heavily
impacted in recent years by a shifting series of judicial and administrative
decisions. For example, in late December 1997, the U.S. District Court for the
Northern District of Texas ruled that the Telecommunications Act
unconstitutionally singled out the RBOCs for punishment by prohibiting them from
offering long distance services within their service areas. On September 4,
1998, the United States Court of Appeals for the Fifth Circuit reversed the
Texas district court's judgment. However, Supreme Court review of the decision
is anticipated. If the December 1997 Texas district court decision is affirmed
by any subsequent United States Supreme Court review, RBOCs, such as SBC
Communications, Inc. ("SBC") and Pacific Bell, would have significant
opportunities to offer long distance services and to bundle their service
offerings. Although these companies would still require state public utilities
commission ("PUC") approval to enter long distance markets prior to beginning
service, the district court's ruling, if reinstated, would provide them relief
from significant federal regulatory restrictions and allow them to become more
formidable competitors of the Company. In addition, on August 6, 1998 the FCC
initiated a proceeding to allow ILECs to offer DSL and other advanced
telecommunications services. The FCC has proposed to permit the offering of such
services by ILECs on an unregulated basis if certain separate subsidiary and
interconnection requirements are met. The outcome of this proceeding, and its
ultimate effect on competition, are uncertain.

The Company also competes for telephony services with various CLECs in its
target markets, including MFS Communications, NEXTLINK Communications, Inc.
("NEXTLINK"), ICG Telecommunications, Inc. ("ICG"), GST Telecommunications, Inc.
("GST") and Teleport Communications Group, Inc. ("Teleport"). To date, the
Company has not encountered a high level of competition from CLECs or ICPs for
its targeted customers in its initial markets. The Company expects the level of
such competition to increase substantially in the future, and there can be no
assurance that the Company will be able to expand successfully, retain its
existing customers or price its products profitably in the presence of such
increased competition. The Company also faces, and expects to continue to face,
competition from other current and potential market entrants, including AT&T
Corp. ("AT&T"), MCI Communications Corporation ("MCI"), Sprint, WorldCom and
other IXCs, wireless telephone system operators and private networks built by
large end users. AT&T has indicated its intention to offer local
telecommunications services in certain U.S. markets, either directly or in
conjunction with CLECs or cable operators. In January 1998 AT&T announced a plan
to acquire Teleport, one of the Company's CLEC competitors. That acquisition, if
consummated, would allow AT&T to sell integrated local, long-distance and data
communications services to businesses in the areas served by Teleport, some of
which overlap areas targeted or served by the Company. AT&T has also announced
plans to merge with Tele-Communications, Inc. ("TCI"), the nation's largest
operator of cable television systems, and to provide telephone services over the
TCI cable plant. Sprint recently announced plans to deploy an advanced
telecommunications network intended to boost speed and capacity, cut costs and
provide an integrated platform to enter local markets, and has signed access
agreements with a number of RBOCs and GTE. WorldCom has acquired MFS
Communications (one of the Company's CLEC competitors) and Brooks Fiber
Properties, Inc., both major CLECs, and, most recently, MCI. Ameritech Corp.
("Ameritech") and US West Inc. ("US West") have also announced plans to enter
the long distance market by forming joint sales ventures with Qwest
Communications International Corp. ("Qwest"), a growing provider of fiber
optic-based telecommunications services.

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Although these particular deals with Qwest have been declared unlawful by the
FCC as a result of actions brought by AT&T and MCI, they remain subject to
ongoing judicial and FCC review, and a continuing trend toward combinations and
strategic alliances in the telecommunications industry, including combinations
or potential consolidations among RBOCs or CLECs, or between IXCs and CLECs,
could give rise to significant new competitors for the Company. The Company also
expects increased competition from ILECs operating outside of their current
local service areas, cable television systems, electric utilities, microwave and
other wireless carriers and satellite licensees.

INTERNET SERVICES. The Internet services market is extremely competitive,
and the Company expects competition in this market to intensify in the future.
The Company's current and prospective competitors include many large companies
that have substantially greater market presence and financial, technical,
marketing and other resources than the Company. The Company competes (or in the
future is expected to compete) directly or indirectly with the following
categories of companies: (i) national and regional ISPs; (ii) established
on-line services; (iii) computer software and technology companies; (iv)
national telecommunications companies; (v) RBOCs; (vi) cable operators; and
(vii) nonprofit or educational ISPs. The entry of new participants from these
categories and the potential entry of competitors from other categories (such as
computer hardware manufacturers) would result in substantially greater
competition for the Company.

ADVANCED NETWORK SERVICES. In the markets for LAN/WAN services and other
advanced network services, the Company will face competition from a number of
companies focused on the LAN and WAN market, including companies with
significantly greater financial resources, more extensive business experience,
and greater market and service capabilities than the Company. In particular, the
Company will be required to compete with companies that design and manufacture
products for the LAN and WAN markets and large system integrators. The Company
also competes with the ILEC for data connectivity services. Pacific Bell, for
example, recently announced that it intends to offer DSL services over its
existing networks. Substantially all of the Company's current and prospective
competitors in the markets for advanced network services have greater market
presence and financial, technical, marketing and other resources than the
Company.

RISK OF SYSTEM FAILURE; SECURITY RISKS

The Company's success in marketing its services to business customers
requires the Company to provide reliable service. The Company's networks are
subject to physical damage, power loss, capacity limitations, software defects,
breaches of security (by computer virus, break-ins or otherwise) and other
factors which may cause interruptions in service or reduced capacity for the
Company's customers. FirstWorld utilizes various procedures to minimize security
risks. The Company currently provides its customers their own physical and
permanent virtual circuits throughout the FirstWorld network. The Company also
utilizes a Fire Wall to protect its internet customers. In addition, the
Company's own fiber network is inaccessible, in that it has no electrical
interfaces that allow the possibility of monitoring. All termination points and
manholes within Firstworld's own fiber network are locked and secured. There can
be no assurance, however, that these security procedures will prove to be
adequate. Moreover, the Company's current, and certain of its planned networks,
are located in an area prone to earthquakes. An earthquake or other natural
disaster affecting the normal operations of the Company or the ILECs with which
the Company does business could seriously impair the Company's ability to
provide service to customers. Interruptions in service, capacity limitations or
security breaches could have a material adverse effect on customer acceptance
and, therefore, on the Company's business. Certain aspects of the Company's
network architecture involve new applications of equipment which may result in
technical issues that may not be easily resolved. Although the Company generally
seeks to limit its liability through its contracts with customers, there can be
no assurance that the Company will not be held liable for damages resulting from
service failures. Lapses in service or reliability also could lead to a loss of
customers, which could have a material adverse effect on the cash flow available
to the Company to make principal and interest payments on its indebtedness,
including the Notes. In addition, while the Company believes it has

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insurance comparable to that maintained by other companies in the industry, the
Company's central office facility is not fully insured against, and the Anaheim
fiber loop is not insured against, earthquake loss.

CHANGES IN TECHNOLOGY, SERVICES AND INDUSTRY STANDARDS

The telecommunications industry has been characterized by rapid
technological advances, changes in end user requirements, frequent new service
introductions, evolving industry standards and decreases in the cost of
equipment and the pricing of services. The Company expects these changes to
continue, and believes that its long-term success will increasingly depend on
its ability to offer services that exploit advanced technologies and anticipate
or adapt to evolving industry standards. There can be no assurance that the
Company's services will not become economically or technically outmoded by
technology or services now existing or developed and implemented in the future
or that the Company will have sufficient resources to develop or acquire new
technologies or to introduce new services capable of competing with future
technologies or service offerings. The effect on the Company of technological
changes cannot be predicted and could be material and adverse to the Company's
business, financial condition and results of operations and the Company's
ability to make principal and interest payments on its outstanding indebtedness,
including the Notes.

SIGNIFICANT CAPITAL REQUIREMENTS

The development of the Company's business and deployment of its services and
systems will require significant additional capital to fund capital
expenditures, working capital, debt service and operating losses. The Company's
principal capital expenditure requirements involve the purchase, installation
and construction of network operations centers, other network infrastructure and
customer located equipment ("CLE"). The Company believes that the proceeds from
the Private Note Offering and the concurrent investment by Colorado Spectra 3,
LLC, a Colorado limited liability Company controlled by Donald L. Sturm
("Spectra 3") and Enron of an aggregate amount of $20 million (the "Additional
Equity Investment") will be sufficient to fund the Company's aggregate capital
expenditures and working capital requirements, including operating losses,
associated with its roll-out into the Orange County, San Gabriel and South Bay
areas. The Company expects that as it expands its networks beyond these areas,
its capital requirements will require it to obtain additional financing, which
may include commercial bank borrowings, vendor financing or the sale or issuance
of equity and debt securities either through one or more offerings or to one or
more strategic investors. If demand for the Company's services is materially
different than expected, the Company may require additional financing at an
earlier date, although the Company believes that it would be able to reduce
certain costs that are, to a large extent, demand-driven. There can be no
assurance that the Company will be successful in raising additional capital in
sufficient amounts to fund its strategic objectives, or that such funds, if
available, will be available on terms that the Company will consider acceptable.
The Company terminated its revolving credit facility (the "Credit Facility") in
connection with the Private Note Offering, and there can be no assurance that
the Company will be able to enter into a new facility on terms acceptable to the
Company. Failure to raise sufficient funds may require the Company to modify,
delay or abandon some of its planned future expansion or expenditures, which
could have a material adverse effect on the Company's business, financial
condition and results of operations and the Company's ability to make principal
and interest payments on its indebtedness, including the Notes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." In addition, the Indenture imposes
operating and financial restrictions on the Company and its subsidiaries. These
restrictions affect, and in certain cases significantly limit or prohibit, among
other things, the ability of the Company and its subsidiaries to incur
additional indebtedness, pay dividends or make distributions in respect of the
Company's or such subsidiaries' capital stock, make other restricted payments,
enter into sale and leaseback transactions, create liens upon assets, enter into
transactions with affiliates or related persons, sell assets, or consolidate,
merge or sell all or substantially all of their assets. See "Description of the
Notes." There can be no assurance that such covenants will not adversely affect
the Company's ability to finance its future operations or capital needs or to
engage in other business activities that may be in the Company's interest.

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DEPENDENCE ON KEY PERSONNEL

The success of the Company depends, in large part, upon the continuing
contributions of its key technical, marketing, sales and management personnel.
The loss of the services of one or more key people could have a material adverse
effect upon the business, financial condition and results of operations of the
Company. The Company does not have employment agreements with any of its
officers or employees, nor does it maintain any key man life insurance. The
Company's future success also is dependent upon its continuing ability to
attract and retain additional highly qualified personnel. The Company currently
is seeking to hire a number of additional senior management personnel.
Competition for such personnel is intense, and the Company's inability to
attract and retain additional key employees could have a material adverse effect
on the Company's business, financial condition and results of operations and the
Company's ability to make principal and interest payments on its indebtedness,
including the Notes. There can be no assurance that the Company's existing
personnel will continue to be employed by the Company or that the Company will
be able to attract and retain qualified personnel in the future. See
"Management."

GOVERNMENT REGULATION

The Company is subject to regulation by the FCC and by state public service
and public utility commissions as a provider of telecommunications services.
Changes in existing policies or regulations in the state and localities served
by the Company or by the FCC could materially and adversely affect the Company's
business, financial condition and results of operations and its ability to repay
its indebtedness, including the Notes, particularly if those regulatory or
policy changes make it more difficult to obtain unbundled network elements from
ILECs or other telecommunications services at competitive prices, or otherwise
increase the cost and regulatory burdens of providing services. There can be no
assurance that regulatory authorities in the areas served by the Company or the
FCC will refrain from taking actions having an adverse effect on the business or
financial condition or results of operations of the Company. The
Telecommunications Act has significantly altered regulation of the
telecommunications industry by preempting state and local laws to the extent
that they prevent competition and by imposing a variety of new duties on LECs
and ILECs in order to promote competition in local exchange and access services.
Although the Company believes that the Telecommunications Act and other trends
in federal and state legislation and regulation that favor increased competition
are to the Company's advantage, there can be no assurance that the increased
competitive opportunities or other changes in current regulations or future
regulations at the federal or state level will not have a material adverse
effect on the Company's business, financial condition and results of operations
or its ability to make principal and interest payments on its indebtedness,
including the Notes. See "Business--Regulation."

POTENTIAL LIABILITY FOR INFORMATION DISSEMINATED THROUGH NETWORK

The law relating to the liability of on-line service providers, private
network operators and Internet service providers for information carried on or
disseminated through the facilities of their networks is currently unsettled.
Several lawsuits seeking a judgment of such liability are pending. While such
claims have not been asserted against the Company, there can be no assurance
that such claims will not be asserted in the future, or if asserted, will not be
successful. The Telecommunications Act prohibits and imposes criminal penalties
and civil liability for using an interactive computer service for transmitting
certain types of information and content, such as obscene communications.
Numerous states have adopted or are currently considering similar types of
legislation. The imposition upon the Company, ISPs or Web server hosts of
potential liability for materials carried on or disseminated through their
systems could require the Company to implement measures to reduce its exposure
to such liability, which may require the expenditure of substantial resources or
the discontinuation of certain product or service offerings. Further, the costs
incurred in defending against any such claims and potential adverse outcomes of
such claims could have a material adverse effect on the Company's financial
condition and results of operations. The Company believes that it is currently
unclear whether the Telecommunications Act prohibits or imposes liability for
any services provided by the Company should the content of information
transmitted be subject to the statute.

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EFFECTIVE SUBORDINATION OF NOTES; HOLDING COMPANY STRUCTURE

The Company is a holding company that will derive substantially all of its
operating income, if any, from its subsidiaries. The holders of the Notes will
have no direct claim against the subsidiaries for payment under the Notes. The
Company's subsidiaries are separate and distinct legal entities and will have no
obligation, contingent or otherwise, to pay any dividend or make any other
distribution to the Company, or otherwise to pay amounts due with respect to the
Notes or to make funds available for such payments. The Company must rely on
dividends and other payments from its subsidiaries or must raise funds in a
public or private equity or debt offering or sell assets to generate the funds
necessary to meet its obligations, including the payment of principal and
interest on the Notes. There can be no assurance that the Company would be able
to obtain such funds on acceptable terms or at all. FWA has an obligation to
fund a reserve account with a portion of "net revenues" (as defined in the UTS
Agreement) derived from the Anaheim network. See "Business--Agreements with the
City of Anaheim and The Irvine Company-- The City of Anaheim--Universal
Telecommunications System Participation Agreement." There currently are no other
restrictions on payments from the Company's subsidiaries to the Company and the
Indenture contains covenants that restrict the ability of the Company's
subsidiaries to enter into any agreement limiting certain distributions and
transfers, including dividends, to the Company.

The Notes will be effectively subordinated in right of payment to all
existing and future indebtedness and liabilities of the Company's subsidiaries.
The total liabilities of the Company's subsidiaries as of June 30, 1998 were
approximately $28.3 million. In addition, the Indenture will permit the Company
and its subsidiaries to incur additional indebtedness, subject to the
restrictions set forth in the Indenture. See "Description of the Notes--Certain
Covenants--Limitation on Consolidated Indebtedness." Consequently, in the event
of a bankruptcy, liquidation, dissolution, reorganization or similar proceeding
with respect to the Company's subsidiaries, the holders of any indebtedness of
the Company's subsidiaries will be entitled to payment thereof from the assets
of such subsidiaries prior to the holders of any general unsecured obligations
of the Company, including the Notes.

The Notes also are unsecured and will be effectively subordinated to any
secured indebtedness of the Company to the extent of the value of the assets
securing such indebtedness. The Indenture will permit the Company and its
subsidiaries to incur additional secured indebtedness, including purchase money
indebtedness in unlimited amounts, and indebtedness of up to $75 million
pursuant to one or more credit facilities. In the event of a bankruptcy,
liquidation, dissolution, reorganization or similar proceeding with respect to
the Company, the holders of any secured indebtedness will be entitled to proceed
against the collateral that secures such secured indebtedness and such
collateral will not be available for satisfaction of any amounts owed under the
Notes. See "Description of Exchange Notes--Certain Covenants--Limitation on
Consolidated Indebtedness."

GEOGRAPHICAL CONCENTRATION OF THE COMPANY'S CURRENT OPERATIONS

The Company's first network clusters will serve markets surrounding
metropolitan Los Angeles. Unless and until the Company expands beyond Southern
California, the Company's geographic focus may make it more vulnerable than its
competitors to economic downturns and market changes in the region or cities in
which it operates. A downturn in the economies of the region or cities in which
the Company operates or a substantial increase in competition within this region
or these cities, could have a material adverse effect on the Company's business,
financial condition and results of operations and the Company's ability to make
principal and interest payments on its indebtedness, including the Notes.

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CONTROL BY PRINCIPAL STOCKHOLDERS; POTENTIAL CONFLICTS OF INTEREST

As of May 31, 1998, Spectra 1, LLC, a Colorado limited liability company
controlled by Donald L. Sturm ("Spectra 1"), Colorado Spectra 2, LLC, a Colorado
limited liability company controlled by Donald L. Sturm ("Spectra 2"), and
Spectra 3 (together with Spectra 1 and Spectra 2, the "Sturm Entities")
beneficially owned approximately 37.4% of the Company's outstanding common
stock, including 49.3% of the Company's outstanding Series A Common Stock, which
possesses super-voting rights. By virtue of the super-voting rights of the
Series A Common Stock, the Sturm Entities control approximately 46.7% of the
voting power of the Company's outstanding common stock. As of May 31, 1998,
Enron beneficially owned approximately 32.1% of the Company's outstanding common
stock, including 49.3% of the Company's Series A Common Stock. By virtue of the
super-voting rights of the Series A Common Stock, Enron controls approximately
45.5% of the outstanding voting power of the Company's common stock. In
addition, the Sturm Entities are entitled to appoint three directors and Enron
is entitled to appoint two directors of the Company's seven-person Board of
Directors pursuant to a Securityholders Agreement (the "Securityholders
Agreement") among the Sturm Entities, Enron and the Company, and Donald L. Sturm
is the Company's Chairman of the Board and Chief Executive Officer. As a result
of their respective ownership interests and Board designees, the Sturm Entities
and Enron control the Company. The Sturm Entities and Enron have the ability to
control the election of at least a majority of the directors of the Company and
any other major decisions involving the Company or its assets. The ownership and
voting interests possessed by the Sturm Entities and Enron make it impossible
for a third party to acquire control of the Company without the consent of the
Sturm Entities and Enron.

In addition to their investments in the Company, the Sturm Entities and
Enron have investments, and may in the future make investments, in other
telecommunications companies and ventures, including competitors of the Company.
As a result, conflicts may arise in the negotiation and enforcement of
arrangements entered into by the Company and entities in which the Sturm
Entities or Enron have an interest. In addition, the Company, the Sturm Entities
and Enron have agreed that the Sturm Entities and Enron are under no obligation
to bring to the Company any investment or business opportunities of which they
become aware, even if such opportunities are within the scope and objectives of
the Company. The Sturm Entities and Enron may have an interest in pursuing
acquisitions, divestitures, financings or other transactions that, in their
judgment, could enhance their equity investment, even though such transactions
might involve risk to the holders of the Notes. See "Principal Stockholders" and
"Certain Transactions."

ABSENCE OF A PUBLIC MARKET FOR THE NOTES; RESTRICTIONS ON TRANSFER

As of the date hereof, the only registered holder of Private Notes is Cede &
Co., as the nominee of DTC. The Company believes that, as of the date hereof,
such holder is not an "affiliate" (as such term is defined in Rule 405 under the
Securities Act) of the Company. Prior to the Private Note Offering there had
been no market for the Notes, and there can be no assurance that such a market
will develop or, if such a market develops, as to the liquidity of such market.
The Exchange Notes will not be listed on any securities exchange, but the
Private Notes are eligible for trading in the PORTAL market. The Exchange Notes
are new securities for which there is currently no market. The Initial
Purchasers have advised the Company that they intend to make a market in the
Exchange Notes, as well as the Private Notes, as permitted by applicable laws
and regulations; however, the Initial Purchasers are not obligated to do so, and
may discontinue any such market making activities at any time without notice. In
addition, such market making activity may be limited during the Exchange Offer
and the pendency of the Shelf Registration Statement (as defined in the
Registration Rights Agreement). Therefore, there can be no assurance that an
active market for the Exchange Notes will develop. If a trading market develops
for the Exchange Notes future trading prices of such securities will depend on
many factors, including, among other things, prevailing interest rates, the
market for similar securities, the performance of the Company and other factors.
In addition, based on such factors, the Exchange Notes may trade at a discount
from their initial offering price. See "The Exchange Offer" and "Plan of
Distribution."

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ORIGINAL ISSUE DISCOUNT; POSSIBLE UNFAVORABLE TAX AND OTHER LEGAL CONSEQUENCES
FOR HOLDERS OF NOTES AND THE COMPANY

The Private Notes were, and the Exchange Notes will be, issued at a
substantial discount from their stated principal amount at maturity.
Consequently, purchasers of Exchange Notes should be aware that, although there
will be no periodic payments of cash interest on the Exchange Notes prior to
October 15, 2003, original issue discount (that is, the difference between the
stated redemption price at maturity and the issue price of the Exchange Notes)
will accrete from the issue date of the Exchange Notes and will be includable as
interest income periodically (for periods ending on or prior to April 15, 2003)
in a holder's gross income for U.S. federal income tax purposes in advance of
receipt of the cash payments to which the income is attributable. See "Certain
United States Federal Income Tax Considerations" for a more detailed discussion
of the federal income tax consequences to the holders of the Exchange Notes
regarding the purchase, ownership and disposition of the Exchange Notes.

If a bankruptcy case is commenced by or against the Company under U.S.
bankruptcy laws after the issuance of the Notes, the claim of a holder of Notes
with respect to the principal amount thereof may be limited to an amount equal
to the sum of (i) the initial offering price and (ii) that portion of the
original issue discount that is not deemed to constitute "unmatured interest"
for purposes of the U.S. bankruptcy laws. Any original issue discount that was
not amortized as of any such bankruptcy filing would constitute "unmatured
interest."

The Notes may be subject to the high yield discount obligation rates, which
will defer and may, in part, eliminate the Company's ability to deduct for U.S.
federal income tax purposes the original issue discount attributable to the
Notes. Accordingly, the Company's after tax cash flow might be less than if the
original issue discount on the Notes were deductible when it accrued.

YEAR 2000 ISSUES

The Company is continuing to determine whether its systems and its vendors'
systems will require updating to continue to function properly beyond 1999. As
the Company adds new features to its network it will continue to evaluate the
functionality of such features beyond 1999. Although the Company does not expect
to incur significant expenditures to upgrade its network to address Year 2000
problems, there can be no assurance that the Company will be able to identify
all Year 2000 problems in its systems in advance of their occurrence or that the
Company will be able to successfully remedy any problems. In addition, to the
extent that the Company's suppliers, including the ILECs over whose networks the
Company provides certain of its services, or customers fail to address Year 2000
issues in a timely and effective manner, the Company's ability to provide
uninterrupted, reliable service to customers serviced through such networks may
be adversely affected. Moreover, the profitability and stability of the
Company's customers may be adversely affected by Year 2000 problems not related
to their relationships with the Company. The expenses associated with the
Company's efforts to remedy any Year 2000 problems, the expenses or liabilities
to which the Company may become subject as a result of such problems or the
impact of Year 2000 problems on the ability of existing or future customers to
do business with the Company could have a material adverse effect on the
Company's business, prospects, operating results, financial condition and its
ability to service and pay its indebtedness, including the Notes.

RISKS REGARDING FORWARD LOOKING STATEMENTS

The statements contained in this Prospectus that are not historical facts
are forward-looking statements, which can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should" or "anticipates" or the negative thereof or other variations thereon or
comparable terminology, or by discussions of strategy that involve risks and
uncertainties. The Company wishes to caution the reader that these
forward-looking statements, such as those relating to the Company's plans to
build networks in new areas, its anticipation of revenues from designated
markets and statements

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regarding the development of the Company's business, the markets for the
Company's services and products, the Company's anticipated capital expenditures,
regulatory reform and other statements contained herein regarding matters that
are not historical facts, are only predictions. No assurance can be given that
the expected future results will be achieved; actual events or results may
differ materially as a result of risks facing the Company or other external
events or due to decisions made by the Company in the future. The risks facing
the Company include, but are not limited to, those relating to the Company's
ability to successfully market its services to current and new customers, access
markets, design and construct fiber optic networks, install cable and
facilities, including switching electronics, and obtain rights-of-way, building
access rights and any required governmental authorizations and permits, all in a
timely manner, at reasonable costs and on satisfactory terms and conditions, as
well as regulatory, legislative and judicial developments that could cause
actual results to differ materially from the future results indicated, expressed
or implied, in such forward-looking statements.

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THE EXCHANGE OFFER

PURPOSE OF THE EXCHANGE OFFER

The Private Notes were sold by the Company on April 13, 1998 (the "Closing
Date") to the Initial Purchasers pursuant to the Purchase Agreement. The Initial
Purchasers subsequently sold the Private Notes to "qualified institutional
buyers" ("QIBs"), as defined in Rule 144A under the Securities Act ("Rule
144A"), in reliance on Rule 144A. As a condition to the sale of the Private
Notes, the Company and the Initial Purchasers entered into the Registration
Rights Agreement on April 13, 1998. Pursuant to the Registration Rights
Agreement, the Company agreed that, unless the Exchange Offer is not permitted
by applicable law or Commission policy, it would (i) file with the Commission a
Registration Statement under the Securities Act with respect to the Exchange
Notes within 90 days after the Closing Date, (ii) use its best efforts to cause
such Registration Statement to become effective under the Securities Act within
150 days after the Closing Date and (iii) commence the Exchange Offer and use
its best efforts to issue, on or prior to 30 days after the date on which the
Registration Statement was declared effective by the Commission, Exchange Notes
in exchange for all Private Notes tendered prior thereto in the Exchange Offer.
A copy of the Registration Rights Agreement has been filed as an exhibit to the
Registration Statement. The Registration Statement is intended to satisfy
certain of the Company's obligations under the Registration Rights Agreement and
the Purchase Agreement.

RESALE OF THE EXCHANGE NOTES

With respect to the Exchange Notes, based upon an interpretation by the
staff of the Commission set forth in certain no-action letters issued to third
parties, the Company believes that a holder (other than (i) a broker-dealer who
purchases such Exchange Notes directly from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (ii) any
such holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) who exchanges Private Notes for Exchange Notes in the
ordinary course of business and who is not participating, does not intend to
participate, and has no arrangement with any person to participate, in a
distribution of the Exchange Notes, will be allowed to resell Exchange Notes to
the public without further registration under the Securities Act and without
delivering to the purchasers of the Exchange Notes a prospectus that satisfies
the requirements of Section 10 of the Securities Act. However, if any holder
acquires Exchange Notes in the Exchange Offer for the purpose of distributing or
participating in the distribution of the Exchange Notes or is a broker-dealer,
such holder cannot rely on the position of the staff of the Commission
enumerated in certain no-action letters issued to third parties and must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction, unless an exemption from registration
is otherwise available. Each broker-dealer that receives Exchange Notes for its
own account in exchange for Private Notes, where such Private Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Private Notes where such Private Notes
were acquired by such broker-dealer as a result of market-making or other
trading activities. Pursuant to the Registration Rights Agreement, the Company
has agreed to make this Prospectus, as it may be amended or supplemented from
time to time, available to broker-dealers for use in connection with any resale
for one full year after the Expiration Date. See "Plan of Distribution."

TERMS OF THE EXCHANGE OFFER

Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Private
Notes validly tendered and not withdrawn prior to

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<PAGE>
the Expiration Date. The Company will issue $1,000 in principal amount at
maturity of Exchange Notes in exchange for each $1,000 in principal amount at
maturity of outstanding Private Notes surrendered pursuant to the Exchange
Offer. Private Notes may be tendered only in integral multiples of $1,000.

The form and terms of the Exchange Notes are the same as the form and terms
of the Private Notes except that (i) the exchange will have been registered
under the Securities Act, and, therefore, the Exchange Notes will not bear
legends restricting the transfer thereof and (ii) holders of the Exchange Notes
will not be entitled to certain rights of holders of the Private Notes under the
Registration Rights Agreement, which rights will terminate upon the consummation
of the Exchange Offer. The Exchange Notes will evidence the same indebtedness as
the Private Notes (which they replace) and will be issued under, and be entitled
to the benefits of, the Indenture, which also authorized the issuance of the
Private Notes, such that both series of Notes will be treated as a single class
of debt securities under the Indenture.

As of the date of this Prospectus, $470,000,000 in aggregate principal
amount at maturity of the Private Notes are outstanding. Only a registered
holder of the Private Notes (or such holder's legal representative or
attorney-in-fact) as reflected on the records of the Trustee under the Indenture
may participate in the Exchange Offer. There will be no fixed record date for
determining registered holders of the Private Notes entitled to participate in
the Exchange Offer.

Holders of the Private Notes do not have any appraisal or dissenters' rights
under the Indenture in connection with the Exchange Offer. The Company intends
to conduct the Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the Securities
Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act") and
the rules and regulations of the Commission thereunder.

The Company shall be deemed to have accepted validly tendered Private Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Private Notes for the purposes of receiving the Exchange Notes from the
Company.

Holders who tender Private Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Private
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "--Fees and Expenses."

EXPIRATION DATE; EXTENSIONS; AMENDMENTS

The term "Expiration Date" shall mean 5:00 p.m. New York City time on
November 9, 1998, unless the Company, in its reasonable discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.

In order to extend the Exchange Offer, the Company will (i) notify the
Exchange Agent of any extension by oral or written notice and (ii) mail to the
registered holders an announcement thereof which shall include disclosure of the
approximate number of Private Notes deposited to date, each prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date.

The Company reserves the right, in its reasonable discretion, (i) to delay
accepting any Private Notes, (ii) to extend the Exchange Offer or (iii) if any
conditions set forth below under "--Conditions" shall not have been satisfied,
to terminate the Exchange Offer by giving oral or written notice of such delay,
extension or termination to the Exchange Agent. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by oral or written notice thereof to the registered holders. If the Exchange
Offer is amended in a manner determined by the Company to constitute a material
change, the Company will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered holders, and
the Company will extend the Exchange Offer

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<PAGE>
for a period of five to ten business days, depending upon the significance of
the amendment and the manner of disclosure to the registered holders, if the
Exchange Offer would otherwise expire during such five to ten business day
period.

ACCRETION OF THE EXCHANGE NOTES AND THE PRIVATE NOTES; INTEREST

The Private Notes will continue to accrete in principal amount through (but
not including) the date of issuance of the Exchange Notes. Any Private Notes not
tendered or accepted for exchange will continue to accrete in principal amount
at the rate of 13% per annum through April 15, 2003 and thereafter cash interest
will accrue and be payable in accordance with its terms. From and after the date
of issuance of the Exchange Notes, the Exchange Notes shall accrete in principal
amount at the rate of 13% per annum, but no cash interest will accrue or be
payable in respect of the Exchange Notes prior to April 15, 2003. Thereafter,
the Exchange Notes will bear interest at a rate equal to 13% per annum. Interest
on the Exchange Notes will be payable semi-annually in arrears on April 15 and
October 15 of each year, commencing on October 15, 2003.

PROCEDURES FOR TENDERING

Only a registered holder of Private Notes may tender such Private Notes in
the Exchange Offer. To tender in the Exchange Offer, a holder of Private Notes
must complete, sign and date the Letter of Transmittal, or a facsimile thereof,
have the signatures thereon guaranteed if required by the Letter of Transmittal,
and mail or otherwise deliver such Letter of Transmittal or such facsimile to
the Exchange Agent at the address set forth below under "--Exchange Agent" for
receipt prior to the Expiration Date. In addition, either (i) certificates for
such Private Notes must be received by the Exchange Agent along with the Letter
of Transmittal, (ii) a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Private Notes, if such procedure is
available, into the Exchange Agent's account at the Depositary pursuant to the
procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date or (iii) the holder must comply with
the guaranteed delivery procedures described below.

The tender by a holder that is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.

THE METHOD OF DELIVERY OF PRIVATE NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR PRIVATE NOTES SHOULD BE
SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.

Any beneficial owner(s) of the Private Notes whose Private Notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender should contact the registered holder
promptly and instruct such registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and executing the Letter of
Transmittal and delivering such owner's Private Notes, either make appropriate
arrangements to register ownership of the Private Notes in such owner's name or
obtain a properly completed bond power from the registered holder. The transfer
of registered ownership may take considerable time.

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<PAGE>
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "--Withdrawal of Tenders"), as the case may be, must be guaranteed by
an Eligible Institution (as defined below) unless the Private Notes tendered
pursuant thereto are tendered (i) by a registered holder who has not completed
the box titled "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be made by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act which is a member of one of
the recognized signature guarantee programs identified in the Letter of
Transmittal (an "Eligible Institution").

If the Letter of Transmittal is signed by a person other than the registered
holder of any Private Notes listed therein, such Private Notes must be endorsed
or accompanied by a properly completed bond power, signed by such registered
holder as such registered holder's name appears on such Private Notes.

If the Letter of Transmittal or any Private Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.

The Exchange Agent and the Depositary have confirmed that any financial
institution that is a participant in the Depositary's system may utilize the
Depositary's Automated Tender Offer Program to tender Private Notes.

All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Private Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Private
Notes not properly tendered or any Private Notes the Company's acceptance of
which would, in the opinion of counsel for the Company, be unlawful. The Company
also reserves the right to waive any defects, irregularities or conditions of
tender as to particular Private Notes. The Company's interpretation of the terms
and conditions of the Exchange Offer (including the instructions in the Letter
of Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Private Notes must be
cured within such time as the Company shall determine. Although the Company
intends to notify holders of defects or irregularities with respect to tenders
of Private Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Private Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived.

While the Company has no present plan to acquire any Private Notes that are
not tendered in the Exchange Offer or to file a registration statement to permit
resales of any Private Notes that are not tendered pursuant to the Exchange
Offer, the Company reserves the right in its sole discretion to purchase or make
offers for any Private Notes that remain outstanding subsequent to the
Expiration Date or, as set forth below under "--Conditions," to terminate the
Exchange Offer and, to the extent permitted by applicable law, purchase Private
Notes in the open market, in privately negotiated transactions or otherwise. The
terms of any such purchases or offers could differ from the terms of the
Exchange Offer.

By tendering, each holder of Private Notes will represent to the Company
that, among other things, (i) Exchange Notes to be acquired by such holder of
Private Notes in connection with the Exchange Offer are being acquired by such
holder in the ordinary course of the respective business of such holder, (ii)
such holder has no arrangement or understanding with any person to participate
in the distribution of the Exchange Notes, (iii) if such holder is a resident of
the State of California, it falls under the self-executing institutional
investor exemption set forth under Section 25102(i) of the Corporate Securities
Law of 1968 and Rules 260.102.10 and 260.105.14 of the California Blue Sky
Regulations, (iv) if such holder is a

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<PAGE>
resident of the Commonwealth of Pennsylvania, it falls under the self-executing
institutional investor exemption set forth under Sections 203(c), 102(d) and (k)
of the Pennsylvania Securities Act of 1972, Section 102.111 of the Pennsylvania
Blue Sky Regulations and an interpretive opinion dated November 16, 1985, (v)
such holder acknowledges and agrees that any person who is a broker-dealer
registered under the Exchange Act or is participating in the Exchange Offer for
the purposes of distributing the Exchange Notes must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction of the Exchange Notes acquired by
such person and cannot rely on the position of the staff of the Commission set
forth in certain no-action letters, (vi) such holder understands that a
secondary resale transaction described in clause (v) above and any resales of
Exchange Notes obtained by such holder in exchange for Private Notes acquired by
such holder directly from the Company should be covered by an effective
registration statement containing the selling securityholder information
required by Item 507 or Item 508, as applicable, of Regulation S-K of the
Commission and (vii) such holder is not an "affiliate," as defined in Rule 405
under the Securities Act, of the Company. If the holder is a broker-dealer that
will receive Exchange Notes for such holder's own account in exchange for
Private Notes that were acquired as a result of market-making activities or
other trading activities, such holder will be required to acknowledge in the
Letter of Transmittal that such holder will deliver a prospectus in connection
with any resale of such Exchange Notes; however, by so acknowledging and by
delivering a prospectus, such holder will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.

RETURN OF PRIVATE NOTES

If any tendered Private Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if Private Notes are withdrawn
or are submitted for a greater principal amount than the holders desire to
exchange, such unaccepted, withdrawn or non-exchanged Private Notes will be
returned without expense to the tendering holder thereof (or, in the case of
Private Notes tendered by book-entry transfer into the Exchange Agent's account
at the Depositary pursuant to the book-entry transfer procedures described
below, such Private Notes will be credited to an account maintained with the
Depositary) as promptly as practicable.

BOOK-ENTRY TRANSFER

The Exchange Agent will make a request to establish an account with respect
to the Private Notes at the Depositary for purposes of the Exchange Offer within
two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depositary's systems may make book-
entry delivery of Private Notes by causing the Depositary to transfer such
Private Notes into the Exchange Agent's account at the Depositary in accordance
with the Depositary's procedures for transfer. However, although delivery of
Private Notes may be effected through book-entry transfer at the Depositary, the
Letter of Transmittal or facsimile thereof, with any required signature
guarantees and any other required documents, must, in any case, be transmitted
to and received by the Exchange Agent at the address set forth below under
"--Exchange Agent" on or prior to the Expiration Date or pursuant to the
guaranteed delivery procedures described below.

GUARANTEED DELIVERY PROCEDURES

Holders who wish to tender their Private Notes and (i) whose Private Notes
are not immediately available or (ii) who cannot deliver their Private Notes,
the Letter of Transmittal or any other required documents to the Exchange Agent
prior to the Expiration Date, may effect a tender if:

(a) The tender is made through an Eligible Institution;

(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form

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<PAGE>
provided by the Company (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Private Notes and the principal amount at maturity of Private Notes
tendered, stating that the tender is being made thereby and guaranteeing
that, within five New York Stock Exchange trading days after the Expiration
Date, the Letter of Transmittal (or a facsimile thereof), together with the
certificate(s) representing the Private Notes in proper form for transfer or
a Book-Entry Confirmation, as the case may be, and any other documents
required by the Letter of Transmittal, will be deposited by the Eligible
Institution with the Exchange Agent; and

(c) Such properly executed Letter of Transmittal (or facsimile thereof),
as well as the certificate(s) representing all tendered Private Notes in
proper form for transfer and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within five New York Stock
Exchange trading days after the Expiration Date.

Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Private Notes according to the
guaranteed delivery procedures set forth above.

WITHDRAWAL OF TENDERS

Except as otherwise provided herein, tenders of Private Notes may be
withdrawn at any time prior to 5:00 p.m. New York City time, on the Expiration
Date.

To withdraw a tender of Private Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Private Notes to be withdrawn (the "Depositor"), (ii) identify the Private
Notes to be withdrawn (including the certificate number or numbers and principal
amount of such Private Notes) and (iii) be signed by the holder in the same
manner as the original signature on the Letter of Transmittal by which such
Private Notes were tendered (including any required signature guarantees). All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company in its sole discretion, whose
determination shall be final and binding on all parties. Any Private Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Private Notes so withdrawn are validly retendered. Properly withdrawn
Private Notes may be retendered by following one of the procedures described
above under "The Exchange Offer--Procedures for Tendering" at any time prior to
the Expiration Date.

CONDITIONS

Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange the Exchange Notes for, any
Private Notes, and may terminate the Exchange Offer as provided herein before
the acceptance of such Private Notes, if the Exchange Offer violates applicable
law, rules or regulations or an applicable interpretation of the staff of the
Commission.

If the Company determines in its reasonable discretion that any of these
conditions are not satisfied, the Company may (i) refuse to accept any Private
Notes and return all tendered Private Notes to the tendering holders, (ii)
extend the Exchange Offer and retain all Private Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of holders to
withdraw such Private Notes (see "--Withdrawal of Tenders") or (iii) waive such
unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Private Notes that have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders of the Private Notes, and the Company will
extend the Exchange Offer for a period of five to ten business days, depending
upon the significance of the waiver and the manner of disclosure to the
registered holders, if the Exchange Offer would otherwise expire during such
five to ten business day period.

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<PAGE>
TERMINATION OF CERTAIN RIGHTS

All rights under the Registration Rights Agreement (including registration
rights) of holders of the Private Notes eligible to participate in the Exchange
Offer will terminate upon consummation of the Exchange Offer except with respect
to the Company's continuing obligations (i) to indemnify such holders (including
any broker-dealers) and certain parties related to such holders against certain
liabilities (including liabilities under the Securities Act), (ii) to provide,
upon the request of any holder of a transfer-restricted Private Note, the
information required by Rule 144A(d)(4) under the Securities Act in order to
permit resales of such Private Notes pursuant to Rule 144A, (iii) to use its
best efforts to keep the Registration Statement effective to the extent
necessary to ensure that it is available for resales of transfer-restricted
Private Notes by broker-dealers for a period of one full year from the
Expiration Date and (iv) to provide copies of the latest version of the
Prospectus to broker-dealers upon their request for one full year after the
Expiration Date.

LIQUIDATED DAMAGES

In the event of a Registration Default (as defined in the Private Note),
Special Interest will accrue with respect to the first 90-day period immediately
following the occurrence of such Registration Default (from and including the
date on which such Registration Default shall occur to but excluding the date on
which all Registration Defaults have been cured), at a rate of 0.50% per annum.
The rate at which Special Interest accrues will increase by 0.25% per annum at
the end of each subsequent 90-day period until all Registration Defaults have
been cured, but in no event shall such rate exceed 2.00% per annum in the
aggregate regardless of the number of Registration Defaults. Following the cure
of all Registration Defaults, the accrual of all Special Interest will cease.
The filing and effectiveness of the Registration Statement of which this
Prospectus is a part and the consummation of the Exchange Offer will eliminate
all rights of the holders of Private Notes eligible to participate in the
Exchange Offer to receive damages that would have been payable if such actions
had not occurred.

Holders of Transfer Restricted Securities (as defined below) will be
required to make certain representations to the Company (as described in the
Registration Rights Agreement) in order to participate in the Exchange Offer and
will be required to deliver information to be used in connection with the Shelf
Registration Statement (as defined in the Registration Rights Agreement) and to
provide comments on the Shelf Registration Statement within the time periods set
forth in the Registration Rights Agreement in order to have their Transfer
Restricted Securities included in the Shelf Registration Agreement and benefit
from the provisions regarding Special Interest set forth above. Transfer
Restricted Securities shall mean each Private Note until (i) the date on which
such Private Note has been exchanged for an Exchange Note in the Exchange Offer,
(ii) following the exchange by a broker-dealer in the Exchange Offer of such
Private Note for one or more Exchange Notes, the date on which such Exchange
Notes are sold to a purchaser who receives from such broker-dealer on or prior
to the date of such sale a copy of this Prospectus, (iii) the date on which such
Private Note has been effectively registered under the Securities Act and
disposed of in accordance with the Shelf Registration Statement or (iv) the date
on which such Private Note is distributed to the public pursuant to Rule 144(k)
under the Securities Act.

29
<PAGE>
EXCHANGE AGENT

The Bank of New York has been appointed as Exchange Agent of the Exchange
Offer. Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notice of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:

<TABLE>
<S> <C> <C>
BY HAND OR OVERNIGHT DELIVERY: FACSIMILE TRANSMISSIONS: BY REGISTERED OR CERTIFIED
MAIL:

The Bank of New York (Eligible Institutions The Bank of New York
101 Barclay Street Only) 101 Barclay Street, 7E
Corporate Trust Services (212)815-6339 New York, New York 10286
Window CONFIRM BY TELEPHONE Attn: Reorganization Section,
Ground Level or for Information Call: Nathalie Simon
New York, New York 10286 (212)815-5788
Attn: Reorganization Section,
Nathalie Simon
</TABLE>

FEES AND EXPENSES

The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.

The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.

The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$175,000. Such expenses include registration fees, fees and expenses of the
Exchange Agent and the Trustee, accounting and legal fees and printing costs,
among others.

The Company will pay all transfer taxes, if any, applicable to the exchange
of Private Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of the Private Notes pursuant to
the Exchange Offer, then the amount of any such transfer taxes (whether imposed
on the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.

CONSEQUENCE OF FAILURES TO EXCHANGE

Participation in the Exchange Offer is voluntary. Holders of the Private
Notes are urged to consult their financial and tax advisors in making their own
decisions on what action to take.

The Private Notes that are not exchanged for the Exchange Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such Private
Notes may be resold only (i) to a person whom the seller reasonably believes is
a QIB in a transaction meeting the requirements of Rule 144A, (ii) in a
transaction meeting the requirements of Rule 144 under the Securities Act, (iii)
outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, (iv) in accordance with
another exemption from the registration requirements of the Securities Act (and
based upon an opinion of counsel if the Company so requests), (v) to the Company
or (vi) pursuant to an effective registration statement and, in each case, in
accordance with any applicable securities laws of any state of the United States
or any other applicable jurisdiction.

ACCOUNTING TREATMENT

For accounting purposes, the Company will recognize no gain or loss as a
result of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the term of the Exchange Notes.

30
<PAGE>
USE OF PROCEEDS

This Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any cash proceeds from the issuance of the Exchange Notes offered in the
Exchange Offer. In consideration for issuing the Exchange Notes as contemplated
in this Prospectus, the Company will receive in exchange Private Notes in like
principal amount at maturity, the form and terms of the Exchange Notes are the
same as the form and terms of the Private Notes except that (i) the exchange
will have been registered under the Securities Act, and, therefore, the Exchange
Notes will not bear legends restricting the transfer thereof and (ii) holders of
the Exchange Notes will not be entitled to certain rights of holders of the
Private Notes under the Registration Rights Agreement, which rights will
terminate upon the consummation of the Exchange Offer. The Private Notes
surrendered in exchange for Private Notes will be retired and canceled and
cannot be reissued. Accordingly, issuance of the Exchange Notes will not result
in any increase in the indebtedness of the Company.

The net proceeds to the Company from the Private Note Offering and the sale
of equity pursuant to the Additional Equity Investment were approximately $260.7
million after deducting the discount and commissions and other expenses related
to the Private Note Offering and the Additional Equity Investment.

The Company intends to use the net proceeds of the Private Note Offering and
the Additional Equity Investment as follows: (i) to fund development and
construction costs of the Company's networks, including the costs of purchasing
or leasing communications equipment, computers, switches, facilities and related
support infrastructure; (ii) for the purchase and installation of equipment to
be located at customers' premises; (iii) for rights-of-way or access payments;
(iv) to fund the development of support, control and management information
systems; (v) to fund product development; and (vi) for working capital and other
general corporate purposes, including funding operating deficits and net losses.
The Company currently intends to allocate substantial proceeds to each of the
foregoing categories. However, the precise allocation of funds among these uses
will depend on future technological, regulatory and other developments in or
affecting the Company's business, the competitive climate in which it operates
and the emergence of future opportunities.

As part of its business strategy, the Company intends to continue to
evaluate potential acquisitions, joint ventures and strategic alliances that
complement the Company's business. A portion of the proceeds of the Private Note
Offering and the Additional Equity Investment, as well as additional sources of
capital such as credit facilities and other borrowings, and additional debt and
equity issuances, may be used to fund any such acquisitions, joint ventures and
strategic alliances. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."

Because of the number and variability of factors that determine the
Company's use of the net proceeds of the Private Note Offering and the
Additional Equity Investment, management will retain a significant amount of
discretion over the application of the net proceeds. There can be no assurance
that such applications will not vary substantially from the Company's current
intention. Pending such utilization, the Company has and will continue to invest
the net proceeds of the Private Note Offering and the Additional Equity
Investment in short-term investment grade securities.

31
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
30, 1998. This table should be read in conjunction with the Selected
Consolidated Financial Data, the Consolidated Financial Statements of the
Company and notes thereto and the other financial data included elsewhere in
this Prospectus.

<TABLE>
<CAPTION>
AS OF
JUNE 30, 1998--UNAUDITED
------------------------
<S> <C>
(DOLLARS IN THOUSANDS)
Cash and cash equivalents.............................................................. $ 105,622
--------
--------
Debt:
Current portion of long-term obligations and short-term borrowings:
Current portion of long-term debt.................................................. $ 9
Current portion of capital lease obligations....................................... 820
--------
Total current debt............................................................... $ 829
--------
--------
Long-term obligations, less current portion:
Long-term debt, net of discount...................................................... $ 158
Capital lease obligations............................................................ 6,066
13% Senior discount notes, net of discount........................................... 236,128
--------
Total long-term debt............................................................. 242,352
--------
Stockholders' equity:
Preferred Stock, $.0001 par value, 10,000,000 shares authorized at June 30, 1998; no
shares issued or outstanding....................................................... --
Common Stock, $.0001 par value, 100,000,000 shares authorized at June 30, 1998:
Series A, 10,135,164 shares designated at June 30, 1998; 10,135,164 shares issued
and outstanding.................................................................. 1
Series B, 89,864,836 shares designated at June 30, 1998; 15,913,208 shares issued
and outstanding(1)............................................................... 2
Additional paid-in-capital........................................................... 45,595
Warrants............................................................................. 31,963
Stockholder receivables.............................................................. (97)
Deficit accumulated during development stage......................................... (38,748)
--------
Total stockholders' equity....................................................... 38,716
--------
Total capitalization........................................................... $ 281,068
--------
--------
</TABLE>

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

(1) Excludes: (i) 6,666,666 shares of Series B Common Stock subject to issuance
upon exercise of warrants issued in connection with the closing of the
Additional Equity Investment; (ii) 1,766,170 shares of Series B Common Stock
issuable upon exercise of options outstanding under the Company's 1995 and
1997 Stock Option Plans as of June 30, 1998; (iii) 3,713,094 shares of
Series B Common Stock subject to issuance upon exercise of the Private Note
Warrants; and (iv) 14,808,261 shares of Series B Common Stock issuable upon
exercise of other warrants outstanding as of June 30, 1998, including all
adjustments resulting from the Equity Investment (as defined) and the
Additional Equity Investment.

32
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data presented below for the period from
September 1, 1993 (inception) to September 30, 1993, for the years ended
September 30, 1994, 1995, 1996 and 1997, for the period from September 1, 1993
(inception) to September 30, 1997, and as of September 30, 1997 have been
derived from the audited consolidated financial statements of the Company. The
selected consolidated financial data presented below as of June 30, 1998 and for
the nine month periods ended June 30, 1997 and 1998 and the period from
September 1, 1993 (inception) to June 30, 1998 have been derived from the
unaudited consolidated financial statements of the Company. In the opinion of
management, the unaudited financial statements have been prepared on the same
basis as the audited financial statements and include all adjustments, which
consist only of normal recurring adjustments, necessary for a fair presentation
of the financial position and the results of operations for these periods. These
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States which may differ in certain aspects from
accounting principles generally accepted in certain of the jurisdictions in
which the Exchange Notes are being offered. Operating results for the nine month
period ended June 30, 1998 are not necessarily indicative of the results that
may be expected for the full year ending September 30, 1998. The data below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements of the Company and notes thereto.

<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 1, NINE MONTHS PERIOD FROM
1993 YEAR ENDED PERIOD FROM ENDED SEPTEMBER 1,
(INCEPTION) TO SEPTEMBER 30, SEPTEMBER 1, 1993 JUNE 30, 1993
SEPTEMBER 30, ------------------------------ (INCEPTION) TO ----------------- (INCEPTION) TO
1993 1994 1995 1996 1997 SEPTEMBER 30, 1997 1997 1998 JUNE 30, 1998
-------------- ----- ----- ------- ------- ------------------ ------- -------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Service revenue........... $ -- $ 85 $ 57 $ 279 $ 75 $ 496 $ -- $ 649 $ 1,145
Other revenue............. -- -- 40 75 96 211 114 10 221
Costs and expenses:
Network development and
operations............ -- -- 188 1,708 3,170 5,067 3,186 5,497 10,564
Selling, general and
administrative........ 23 429 740 2,409 4,725 8,325 2,806 4,756 13,081
Depreciation and
amortization.......... -- 21 39 75 501 637 393 1,841 2,478
--- ----- ----- ------- ------- -------- ------- -------- --------------
Loss from operations...... (23) (365) (870) (3,838) (8,225) (13,322) (6,271) (11,435) (24,757)
Other income (expense):
Interest expense........ -- (53) (38) (27) (1,372) (1,489) (242) (11,072) (12,561)
Interest income......... -- -- -- 9 149 158 144 3,247 3,405
--- ----- ----- ------- ------- -------- ------- -------- --------------
Loss before extraordinary
item.................... (23) (418) (908) (3,856) (9,448) (14,653) (6,369) (19,260) (33,913)
Extraordinary item--
extinguishment of
debt.................... -- -- -- -- (105) (105) -- (4,730) (4,835)
--- ----- ----- ------- ------- -------- ------- -------- --------------
Net loss.................. $(23) $(418) $(908) $(3,856) $(9,553) $(14,758) $(6,369) $(23,990) $(38,748)
--- ----- ----- ------- ------- -------- ------- -------- --------------
--- ----- ----- ------- ------- -------- ------- -------- --------------
OTHER DATA:
EBITDA(1)................. $(23) $(344) $(831) $(3,763) $(7,829) $(12,790) $(5,878) $(14,324) $(27,114)
Net cash provided by (used
in) operating
activities.............. 3 (416) (781) (2,168) (7,446) (10,808) (5,783) (10,754) (21,562)
Net cash used in investing
activities.............. -- 18 45 923 12,647 13,633 (5,918) (157,737) (171,369)
Net cash provided by
financing activities.... 10 425 827 3,156 20,557 24,976 11,922 273,576 298,552
Capital expenditures...... -- 6 25 908 12,637 13,576 5,918 12,311 25,887
Deficiency of earnings to
cover fixed
charges(2).............. 23 418 908 3,856 9,500 14,705 6,369 19,478 34,182
</TABLE>

33
<PAGE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 JUNE 30, 1998
------------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................................................................... $ 536 $ 105,622
Working capital (deficit)...................................................................... (3,319) 248,991
Total assets................................................................................... 25,321 286,053
Long-term debt................................................................................. 18,964 242,352
Total stockholders' equity..................................................................... 2,265 38,716
</TABLE>

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

34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH "SELECTED
CONSOLIDATED FINANCIAL DATA" AND THE CONSOLIDATED FINANCIAL STATEMENTS OF THE
COMPANY, INCLUDING THE NOTES RELATED THERETO, AND OTHER FINANCIAL DATA APPEARING
ELSEWHERE IN THIS PROSPECTUS. CERTAIN STATEMENTS SET FORTH BELOW CONSTITUTE
"FORWARD-LOOKING STATEMENTS." SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND
UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE THE ACTUAL
RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY, OR INDUSTRY RESULTS, TO BE
MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. GIVEN THESE
UNCERTAINTIES, PROSPECTIVE INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE
ON SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO
SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK
FACTORS" AND "BUSINESS."

OVERVIEW

The Company is a facilities-based ICP which is deploying networks to provide
telecommunications solutions to businesses in clustered, demographically
attractive second tier markets. The Company offers "one-stop shopping" for a
broad array of telecommunications services, including local and long distance
telephone service, high speed Internet access, data connectivity, LAN
connectivity, web hosting, video communications and system integration services.
Within its target markets, the Company has segmented the potential business
customer base and tailored its service offerings, sales and marketing approach
and network development to provide service in a cost effective manner to each
segment. The Company believes its regional approach allows it to best leverage
its network facilities, sales force, customer support staff and brand identity.
The Company's first network clusters will serve the second tier markets
surrounding metropolitan Los Angeles, including Orange County and the San
Gabriel Valley and South Bay areas of Los Angeles County. The Company intends to
selectively expand its reach into other regional markets, both within and
outside of California.

FirstWorld has designed and implemented an advanced and reliable fiber-based
network. Central to the Company's network design is its state-of-the art
integrated voice and data central office service platform, which allows the
Company to integrate third-party systems and the Company's operational support
systems into a unified network. The Company has designed business processes to
simplify provisioning, billing, network management and customer service and has
incorporated operational support systems that implement such processes into its
networks. Among other things, the Company has designed its systems to maximize
operational efficiency by allowing the Company to provide
single-point-of-contact customer service and by facilitating electronic
exchanges of information with the ILEC when possible.

The Company is a development stage company and to date has experienced
significant operating and net losses and negative cash flow from operations and
expects that operating and net losses and negative operating cash flow will
continue for at least the next several years and will increase significantly as
the Company implements its growth strategy of expanding into other cities. See
"Risk Factors--Limited History of Operations; Negative Cash Flow and Operating
Losses," "--Substantial Leverage; Ability to Service Indebtedness" and
"--Significant Capital Requirements." The Company expects to achieve positive
operating margins over time by increasing the number of customers and increasing
the products and services it can provide its customers. The Company expects that
operating and net losses and negative operating cash flow will increase
significantly as the Company implements its growth strategy of expanding its
operations. See "--Liquidity and Capital Resources."

REVENUE

The Company currently offers a broad array of telecommunications services,
including local and long distance telephone service, high speed Internet access,
data connectivity, LAN connectivity, web hosting, video communications and
system integration services. The Company intends to generate near term revenue
from basic services currently provided by ILECs and IXCs, including local, long
distance and other voice services, dedicated access lines and commercial
Internet access, as well as from advanced

35
<PAGE>
network services provided to select customers. The Company believes that it is
positioned to generate additional revenue by providing advanced network services
to a broader market as the demand for such services grows. The Company currently
prices services, such as local and long distance services, which are directly
comparable to its competitors' offerings below prevailing market rates to build
market share. The Company believes that its initial networks in Orange County
and the San Gabriel Valley and South Bay areas of Los Angeles County will allow
it to provide services to a market that includes approximately one million
commercial access lines.

The Company employs a market segmentation strategy, which involves tailoring
service offerings, sales and marketing techniques and network deployment to meet
the different needs of prime commercial, basic commercial, wholesale transport
and wholesale functionality customers. For prime commercial customers
(businesses with sophisticated communications needs), the Company utilizes a
consultative selling approach that involves a systematic assessment of each
customer's telephony, Internet, data communications and video applications
needs. For basic commercial customers (businesses with primarily voice and
Internet needs), the Company uses direct mail, telemarketing and advertising and
offers standardized product bundles consisting of local and long distance
telephony and high speed Internet access. The Company also offers use of its
network elements and central office functionality on a wholesale basis to other
local exchange carriers, including CLECs, IXCs, ISPs and other communications
providers.

COSTS AND EXPENSES

NETWORK DEVELOPMENT AND OPERATIONS. As the Company continues to operate and
maintain its existing network and deploy additional networks, it will incur
network development and operations expenses related to network central office
operations and customer service, including salaries of the employees, real
estate leases for central offices, access offices, co-location and other sites,
costs to interconnect and terminate traffic with other network providers and
network design, planning and internal project management costs.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses are expected to consist primarily of product marketing, sales staff and
sales support expenses, consulting fees related to ongoing regional expansion
studies, general management and administrative overhead expenses and office
leases.

Management has developed the Company's business processes with respect to
customer service, billing, provisioning and network management systems based on
extensive industry and engineering expertise within the Company. The Company has
developed operational support systems, incorporated systems from existing
external sources and retained third parties to produce systems meeting the
Company's specifications to create integrated systems that implement the
Company's business processes. As with its network architecture described above,
the Company believes that its systems exhibit a high degree of scalability to
support network growth, flexibility to support product or technical innovation,
increased reliability and reduced operational cost.

The Company uses different sales channels to target customers within the
four market segments identified by the Company. The Company uses direct sales
efforts in a consultative selling approach with prime commercial customers,
direct sales efforts for wholesale customers and more economical methods such as
direct mail and telemarketing to target basic commercial customers. The Company
is in the process of significantly expanding its sales and marketing staff.

CAPITAL EXPENDITURES. The Company's principal capital expenditure
requirements involve the installation of network infrastructure, which mainly
relates to the installation of fiber optic loops in fiber clusters and the
installation of CLE.

36
<PAGE>
The Company employs a demand-driven approach to network construction. This
approach is intended to minimize deployment of capital not associated with
customer revenue and maximize flexibility to serve the higher margin data market
as demand for high speed data communications services grows. In the deployment
of infrastructure, the Company markets its services to a geographically targeted
cluster of businesses before committing to build a complete fiber-to-the-curb
ring. The Company connects customers to its networks through direct fiber
connections, DSL technology or unbundled network elements licensed from the ILEC
depending on the most cost-effective connection that will support the bundle of
services required by the customer.

For customers served by fiber, the Company generally requires a contract
specifying minimum product usage, pricing and term of service, among other
items. The Company's objective is to reduce the risk associated with capital
deployment of CLE. The Company's contracts generally have terms of one to three
years, depending upon total revenue, services provided and discount or
promotional package.

RESULTS OF OPERATIONS

NINE MONTHS ENDED JUNE 30, 1998 COMPARED WITH THE NINE MONTHS ENDED JUNE 30,
1997

Service revenue increased from zero for the nine-month period ended June 30,
1997 to $649,000 for the nine-month period ended June 30, 1998. The increase
reflects the Company's first three full quarters of network operations. Prior to
the commencement of operations of the Company's Orange County network, the
Company's service revenue consisted principally of reimbursable engineering,
design and construction costs associated with the design of fiber optic
communications networks on a contract basis for the cities of Lakeland, Florida
and Santa Clara, California. Other revenue represents royalties from the license
of the Company's patent for fiber optic connectors. Royalty revenue decreased
from $114,000 for the nine-month period ended June 30, 1997 to $10,000 for the
nine-month period ended June 30, 1998, a decrease of $104,000 or approximately
91%. Going forward, the Company expects that revenue from sales of telephony and
data products and services in Orange County and in other areas targeted for
network construction will account for substantially all of the Company's total
revenue. The Company does not expect that royalty revenue from the patent
license will constitute a significant portion of total revenue in the future as
the Company expands its initial network rollout.

Network development and operations expenses increased from $3,186,000 for
the nine-month period ended June 30, 1997 to $5,497,000 for the nine-month
period ended June 30, 1998, an increase of $2,311,000 or approximately 73%. This
increase is principally comprised of increased personnel costs in the operations
and engineering groups and increased operating costs for the Company's Anaheim
central office.

Selling, general and administrative expenses increased from $2,806,000 for
the nine-month period ended June 30, 1997 to $4,756,000 for the nine-month
period ended June 30, 1998, an increase of $1,950,000 or approximately 70%. In
December 1997, the Company entered into agreements with each of Corporate
Managers, LLC, an affiliate of Spectra 3, and Enron to provide management
consulting services. In March 1998, the agreement with Corporate Managers, LLC
was amended. Fees associated with these agreements are $280,000 per quarter and
payable in arrears. During the period ended June 30, 1998, the Company paid fees
totaling $560,000 under these agreements. Also in March 1998, the Company
engaged an executive recruiting firm to conduct an executive search assignment
for the Chief Executive Officer position. Fees associated with this agreement
totaled approximately $167,000 for the nine-month period ended June 30, 1998.
The remaining increase was principally due to additional marketing, sales and
administrative personnel and an increase in administration expenses related to
rent, liability insurance, telephone and consulting expenses.

Depreciation and amortization expenses increased from $393,000 for the
nine-month period ended June 30, 1997 to $1,841,000 for the nine-month period
ended June 30, 1998, an increase of $1,448,000 or approximately 369%. This
increase primarily relates to the Nortel DMS 500 switch and other equipment in
the Anaheim central office and the built and leased elements of the Company's
fiber optic network and office and other equipment associated with the Company's
general operations.

37
<PAGE>

Interest expense increased from $242,000 for the nine-month period ended
June 30, 1997 to $11,072,000 for the nine-month period ended June 30, 1998, an
increase of $10,830,000 or approximately 4,479%. $8,212,000 of the increase
relates to the accretion of the Notes. $915,000 of the increase relates to
interest expense associated with the Company's arrangements with the City of
Anaheim. $513,000 of the increase relates to interest expense under the
Company's Credit Facility; $635,000 of the increase relates to amortization of
deferred loan costs associated with the Company's Credit Facility. The remaining
portion relates to other short-term loans and interest expense associated with
the Company's capitalized central office building lease and other capital
equipment leases.

Interest income increased from $143,000 for the nine-month period ended June
30, 1997 to $3,247,000 for the nine-month period ended June 30, 1998, an
increase of $3,104,000 or approximately 2,164%. The increase is a result of the
availability of additional funds from the sale of the Notes for investments in
Marketable Securities and cash equivalents. Marketable Securities consist of
commercial paper with original maturities of beyond three months but less than
six months. The Company has classified its Marketable Securities as "held to
maturity," as management has the intent and ability to hold these securities to
maturity. The fair value of the Company's Marketable Securities approximates the
carrying value.

YEAR ENDED SEPTEMBER 30, 1997 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1996

Service revenue decreased from $279,000 in 1996 to $75,000 in 1997, a
decrease of $204,000. This decrease reflects the Company's transition from
performing engineering and consulting contracts to developing its own
telecommunications network. Prior to the commencement of operations of the
Company's Orange County network, the Company's service revenue consisted
principally of reimbursable engineering, design and construction costs
associated with the design of fiber optic communications networks on a contract
basis for the cities of Lakeland, Florida and Santa Clara, California. These
engineering contracts were substantially complete in 1996, with only $55,000 of
engineering and consulting revenue recognized in 1997, and the Company stopped
bidding on new engineering contracts in order to focus on design and
construction of its Orange County network. The Company's first customer for its
Orange County network was brought on line in August 1997, and the Company
recognized service revenue from its network operations of $20,000 in fiscal
1997. Other revenue represents royalties from the license of the Company's
patent for fiber optic connectors. Royalty revenue increased from $75,000 in
1996 to $96,000 in 1997. Going forward, the Company expects that revenue from
sales of telephony and data products and services in Orange County and in other
areas targeted for network construction will account for substantially all of
the Company's total revenue. The Company does not expect that royalty revenue
from the patent license will constitute a significant portion of total revenue
in the future as the Company expands its Orange County network.

Network development and operations expenses increased from $1,708,000 in
1996 to $3,170,000 in 1997, an increase of $1,462,000 or 86%. This increase is
principally comprised of increased personnel costs in the operations and
engineering groups, increased operating costs for the Company's Anaheim central
office and costs for equipment needed to finish a 1996 engineering project.

Selling, general and administrative expenses increased from $2,409,000 in
1996 to $4,725,000 in 1997, an increase of $2,316,000 or 96%. This increase was
principally due to increased personnel costs of sales and marketing and
administrative personnel and an increase in administration expense related to
rent, insurance and telephone.

Depreciation and amortization expenses increased from $75,000 in 1996 to
$501,000 in 1997, an increase of $426,000. This increase consists principally of
depreciation related to the Anaheim central office and built and leased elements
of the fiber optic network in Anaheim and depreciation related to office and
other equipment associated with the Company's general operations.

Interest expense increased from $27,000 in 1996 to $1,372,000 in 1997.
$997,000 of the increase relates to interest expense associated with the
Company's arrangements with the City of Anaheim. See "Business--Agreements with
the City of Anaheim and The Irvine Company" and Note 8 of Notes to

38
<PAGE>
Consolidated Financial Statements. The other principal reasons for the increase
are interest expense under the Credit Facility and other short-term loans and
interest expense associated with the Company's capitalized central office
building lease and other capital equipment leases. See "--Liquidity and Capital
Resources."

Interest income increased from $9,000 to $149,000 in 1997. The increase of
$140,000 is a result of an increase in funds available for short-term investment
as a result of funds raised from sales of preferred stock in January 1997.

YEAR ENDED SEPTEMBER 30, 1996 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1995

Service revenue increased from $57,000 in 1995 to $279,000 in 1996, an
increase of $222,000. This increase relates to the engineering contracts with
the cities of Lakeland, Florida and Santa Clara, California, for which revenue
was first recognized in late 1995, with a majority of the revenue being
generated in 1996. Other revenue represents royalties from the license of the
Company's patent for fiber optic connectors.

Network development and operations expenses increased from $188,000 in 1995
to $1,708,000 in 1996, an increase of $1,520,000. The increase is principally
comprised of increased personnel costs of the engineering and operations group,
increased consulting costs associated with the start-up of the Company's Anaheim
central office and network, legal fees relating to the agreements with the City
of Anaheim and regulatory issues, and general increases in operations expenses,
including rent, travel, supplies and telephone.

Selling, general and administrative expenses increased from $740,000 in 1995
to $2,409,000 in 1996, an increase of $1,669,000. This increase was principally
due to increased personnel costs in sales, marketing, administration and
executive personnel, an increase in consultant expenses, including political,
public relations and general business consultants, increased legal fees and an
increase of general business and administrative expenses.

Depreciation and amortization expenses increased from $39,000 in 1995 to
$75,000 in 1996, an increase of $36,000. This increase primarily consists of
depreciation related to office and other equipment associated with the Company's
general operations and depreciation related to network assets.

Interest expense decreased from $38,000 in 1995 to $27,000 in 1996, a
decrease of $11,000. Interest in 1996 related to interest on capital equipment
leases. Interest in 1995 related to capital lease interest and expense incurred
on notes payable prior to their conversion into preferred stock.

LIQUIDITY AND CAPITAL RESOURCES

The telecommunications service business is a capital intensive business. The
Company's existing operations have required and will continue to require
substantial capital investment for the installation of fiber, electronics and
related equipment in order to provide switched services in the Company's
networks and the funding of operating losses during the start-up phase of each
market. In addition, the Company's strategic plan calls for expansion into
additional market areas. Such expansion will require significant additional
capital for the design, development and construction of new networks and the
funding of operating losses during the start-up phase of each market. The
Company used $10,754,000 in cash for operating activities for the nine-month
period ended June 30, 1998, compared to $5,783,000 for the nine-month period
ended June 30, 1997. The increase was primarily due to an increase in the
Company's activities associated with the development and initiation of switched
local services in the City of Anaheim. The Company invested an additional
$12,311,000 of cash in property and equipment for the nine-month period ended
June 30, 1998, compared to $5,918,000 for the nine-month period ended June 30,
1997. The Company has funded substantially all of these expenditures through the
private sale of equity securities, capital leases, and short and long-term debt
financing.

From its inception through June 30, 1998, the Company raised approximately
$67 million from the private sale of stock. On December 30, 1997, the Company
consummated a private placement of equity

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<PAGE>
securities to Spectra 3 and Enron. Aggregate proceeds from this offering,
exclusive of the conversion of the bridge notes, totaled approximately
$26,330,000, net of offering commissions and certain other advisory fees, and
were received on January 6, 1998. See "Certain Transactions." The Company used
$16.9 million of the net proceeds to repay amounts outstanding under the Credit
Facility and other short-term debt. On April 13, 1998, the Company completed the
Private Note Offering and the Additional Equity Investment. In the Private Note
Offering, the Company sold 470,000 units consisting of the Private Notes and
warrants to purchase an aggregate of 3,713,094 shares of the Company's Series B
Common Stock. In the Additional Equity Investment, Spectra 3 and Enron invested
$20 million to purchase shares of Series B Common Stock at $3.00 per share and
warrants to purchase shares of Series B Common Stock at $3.00 per share. The
aggregate net proceeds of the Private Note Offering and the Additional Equity
Investment were $260.7 million.

The substantial capital investment required to initiate the Company's
services and the funding of the Company's initial operations has resulted in
negative cash flow since the Company's inception. This negative cash flow is the
result of the requirement to construct the Company's central office in Anaheim
and the construction of fiber-to-the-curb clusters in anticipation of connecting
revenue generating customers. The Company expects to continue to experience
negative cash flow for the foreseeable future due to expansion activities
associated with the development of the Company's markets. There can be no
assurance that the Company will attain break-even cash flow in subsequent
periods. Until sufficient cash flow is generated, the Company will be required
to utilize its current and future capital resources to meet its cash flow
requirements and may be required to issue additional debt and/or equity
securities.

The Company expects that its available cash will be sufficient to fund its
capital plan and operations through the buildout of its proposed networks in
Orange County and the San Gabriel Valley and South Bay areas of Los Angeles
County, which are expected to be substantially complete by the end of 1999. As
the Company pursues expansion of its network to additional areas or if the
Company's available cash resources are not sufficient to fund all of the
Company's operating expenses and capital expenditures, the Company will require
additional capital. In addition, depending on market conditions, the Company may
determine to raise additional capital from time to time. The Company may obtain
additional funding through the public or private sale of debt and/or equity
securities or through securing a bank credit facility.

IMPACT OF THE YEAR 2000

The Company is continuing to assess the functionality of its systems and its
vendors' systems to determine whether such systems will require updating to
continue to function properly beyond 1999. The Company believes that monitoring
the Year 2000 functionality of its network is an on-going process that requires
analyzing the Year 2000 compliance of new features as they are added to its
network. Consequently, the Company expects to continue such monitoring efforts
until the end of 1999. Although the Company does not expect to incur significant
expenditures to upgrade its systems to address Year 2000 problems, there can be
no assurance that the Company will be able to identify all Year 2000 problems in
its systems in advance of their occurrence or that the Company will be able to
successfully remedy any problems. In addition, to the extent that the Company's
suppliers, including the ILECs over whose networks the Company provides certain
of its services, or customers fail to address Year 2000 issues in a timely and
effective manner, the Company's ability to provide uninterrupted, reliable
service to customers serviced through such networks may be adversely affected.
Moreover, the profitability and stability of the Company's customers may be
adversely affected by Year 2000 problems not related to their relationships with
the Company. The expenses associated with the Company's efforts to remedy any
Year 2000 problems, the expenses or liabilities to which the Company may become
subject as a result of such problems or the impact of Year 2000 problems on the
ability of existing or future customers to do business with the Company could
have a material adverse effect on the Company's business, prospects, operating
results, financial condition and its ability to service and pay its
indebtedness, including the Notes.

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<PAGE>
BUSINESS

The Company is a facilities-based ICP which is deploying networks to provide
telecommunications solutions to business customers in clustered, demographically
attractive second tier markets. The Company offers "one-stop shopping" for a
broad array of telecommunications services, including local and long distance
telephone service, high speed Internet access, data connectivity, LAN
connectivity, web hosting, video communications and system integration services.
Within its target markets, the Company has segmented the potential business
customer base and tailors its service offerings, sales and marketing approach
and network development to provide service in a cost-effective manner to each
segment. The Company believes its regional approach allows it to best leverage
its network facilities, sales force, customer support staff and brand identity.
The Company's first network clusters will serve second tier markets surrounding
metropolitan Los Angeles, including Orange County and the San Gabriel Valley and
South Bay areas of Los Angeles County. The Company intends to selectively expand
its reach into other regional markets, both within and outside of California.

The Company's largest stockholders are entities controlled by Donald L.
Sturm, former Vice Chairman of Peter Kiewit Sons' Inc., the founder of MFS
Communications, and Enron, a subsidiary of Enron Corp., one of the world's
leading integrated natural gas and electricity companies. To date, these
stockholders have provided $55 million of the $67 million in equity capital
received by the Company. The Company and Enron have an informal collaborative
relationship to jointly market telecommunications and utility services which the
Company believes can provide it with access to new markets, sales synergies and
product development opportunities.

The Company began network operations in August 1997 and began providing
services to commercial customers in November 1997. As of July 31, 1998, the
Company had approximately 100 commercial customers under contract. The City of
Anaheim, the Company's most significant customer, relies on the Company to
supply local dialtone, long distance, dedicated facilities and Internet service
to substantially all of its municipal facilities.

The Company employs a demand-driven approach to network construction. This
approach is intended to minimize deployment of capital not associated with
customer revenues and maximize flexibility to serve the higher margin data
market as demand for high speed data communication services grows. The Company
connects customers to its networks through direct fiber connections, DSL or
unbundled network elements licensed from the ILEC, depending on the most
cost-effective connection that will support the bundle of services provided to
the customer. The Company generally requires customers that are connected by
fiber to sign long-term contracts to offset the cost of capital deployed.

Although the Company does not own all of the facilities it uses to serve its
customers, it does own key components of such facilities. FirstWorld owns all of
its switching, transport and central monitoring equipment located in the Anaheim
central office, fiber optic clusters used to link customers to the fiber
backbone which it partially owns and partially leases from other entities and,
for customers connected to the Company's network via a direct fiber connection,
the fiber connections and CLE necessary to deliver requested services to such
customers. The Company also owns switching and transport equipment co-located in
other carriers' facilities.

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<PAGE>
The Company believes that the market segments within its target markets have
different customer buying patterns, are subject to different competitive factors
and can best be served by different sales and marketing initiatives. The
following chart outlines the principal components of this approach:

<TABLE>
<CAPTION>
MARKET SEGMENTS PRODUCT CATEGORIES SALES & MARKETING NETWORK ELEMENTS
- --------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
Prime Commercial Voice, data, Internet, Consultative sales approach Fiber, DSL and unbundled
video and systems by account team loops
integration
Basic Commercial Voice and Internet Direct mail and DSL and unbundled loops
Functionality
Wholesale Transport Dedicated access (DS-1, Direct sales to other Fiber
DS-3, OC-1 and OC-3) service providers
Wholesale Functionality Switch and server based Direct sales to Central office and product
applications applications providers servers
</TABLE>

For prime commercial customers (businesses with sophisticated communications
needs), the Company utilizes a consultative selling approach that involves a
systematic assessment of each customer's telephony, Internet, data
communications and video applications needs. For basic commercial customers
(businesses with primarily voice and Internet needs), the Company uses direct
mail, telemarketing and advertising and offers standardized product bundles
consisting of local and long distance telephony and high speed Internet access.
The Company also offers use of its network capabilities on a wholesale basis to
other local exchange carriers, including CLECs, IXCs, ISPs and other
communications providers.

The Company intends to generate near-term revenue from basic services
currently provided by ILECs and IXCs, including local, long distance and other
voice services, dedicated access lines and commercial Internet access, as well
as from advanced network services provided to select customers. The Company
believes that it is positioned to generate additional revenue by providing
advanced network services to a broader market as the demand for such services
grows.

The Company's strategy and network architecture are designed to exploit a
number of trends reshaping the $190 billion telecommunications industry,
including (i) increasing customer demand for high speed, broadband services,
such as the Internet, data networks and video conferencing, (ii) integration of
the markets for local exchange and long distance services, (iii) decreased cost
of high bandwidth connectivity over the wide area, (iv) technical and product
innovation associated with the Internet, transmission control protocol/Internet
protocol ("TCP/IP") and voice over Internet technologies, (v) the further
development of server-based applications and (vi) the migration of existing
business processes to electronic formats.

CORPORATE HISTORY

The Company was incorporated as a California corporation in July 1992 under
the name Sigma Link but did not commence operations until September 1993. Sigma
Link was formed as a wholly owned subsidiary of Lambda Link, a Nevada
corporation ("Lambda Link Nevada"). The Company changed its name from Sigma Link
to Lambda Link International in May 1993. In September 1993, two of the three
principal shareholders of Lambda Link Nevada (the "Separating Shareholders")
resolved a philosophical disagreement they had with the other principal
shareholder of Lambda Link Nevada (the "Remaining Shareholder") regarding the
direction that the business and operations of Lambda Link Nevada should

42
<PAGE>
take by entering into a separation agreement (the "Restructuring").
Specifically, the Separating Shareholders wanted Lambda Link Nevada to become
the facilities based ICP that the Company is today; whereas, the Remaining
Shareholder wanted Lambda Link Nevada to continue to concentrate on engineering,
designing and installing fiber optic and cabling communications systems.

In connection with the Restructuring, Lambda Link Nevada transferred its
100% ownership interest in the Company and certain other assets to the
Separating Shareholders in exchange for the stock the Separating Shareholders
held in Lambda Link Nevada. In addition, the Separating Shareholders resigned
from the board of directors of Lambda Link Nevada, agreed to change the name of
the Company and assumed certain liabilities of Lambda Link Nevada. Subsequent to
the Restructuring, the Company changed its name from Lambda Link International
to SpectraNet International and assumed the assets and liabilities of Lambda
Link Nevada that the Separating Shareholders received in the Restructuring. Both
Separating Shareholders have since left the Company.

In January 1998, the Company changed its name from SpectraNet International
to FirstWorld Communications, Inc. In June 1998, the Company changed its state
of incorporation from California to Delaware.

BUSINESS STRATEGY

The Company's goal is to become the premier ICP in the markets that it
serves. The Company also is seeking to achieve a high degree of market
penetration, form long-term customer relationships and establish a diversified
revenue base. The principal elements of the Company's business strategy include:

TAILOR SERVICE OFFERINGS AND SALES TECHNIQUES TO MARKET SEGMENTS. The
Company employs a market segmentation strategy, which involves tailoring service
offerings, sales and marketing techniques and network deployment to meet the
different needs of prime commercial, basic commercial, wholesale transport and
wholesale functionality customers. The Company believes these market segments
have different customer buying patterns, are subject to different competitive
factors and can best be served by different sales and marketing initiatives.

DEPLOY FLEXIBLE NETWORKS TO PROVIDE VOICE AND DATA SOLUTIONS. The Company
deploys sophisticated fiber-based networks capable of providing integrated
voice, data, Internet and video solutions. The Company has designed its
networks, including its central office service platform, to support a wide array
of telecommunications services and to be compatible with technologies still
under development in the industry, including server-based applications, such as
virtual LANs and e-commerce, and voice over Internet.

PURSUE DEMAND-DRIVEN NETWORK DEPLOYMENT. The Company utilizes a
demand-driven approach to network construction. In the deployment of
infrastructure, the Company markets its services to a geographically targeted
cluster of businesses before committing to build a complete fiber-to-the-curb
ring. In addition, the Company connects customers to its networks through direct
fiber connections, DSL or unbundled loops, depending on the product set and
anticipated revenue and margin from the customers.

GAIN EFFICIENCY THROUGH REGIONAL CONCENTRATION. The Company has adopted a
targeted geographic approach to network deployment. The Company believes the
benefits of building networks in second tier cities clustered within geographic
regions with high business densities include (i) increased market penetration
due to increased focus on management of market activities, support of sales
activities and leverage of advertising or other brand equity, (ii) enhanced
operating margin from a higher proportion of calls that both originate and
terminate on the Company's network, (iii) increased leverage of centralized
assets such as a central office or product platforms and (iv) reduced travel,
regulatory and administrative expenses.

EXPLOIT INTERNAL ENGINEERING AND PRODUCT EXPERTISE. The Company intends to
leverage its substantial internal engineering and product expertise to enhance
and expand the services it offers, decrease network

43
<PAGE>
construction costs, achieve a high degree of scalability, reduce operating
costs, increase reliability and facilitate migration to new technologies over
time.

DEVELOP STRATEGIC RELATIONSHIPS. The Company intends to continue to develop
strategic relationships with municipalities, property developers, service
providers and others that provide the Company with brand identity, physical
assets, new products or technologies, joint marketing synergies or other
support. To date, the Company has established such relationships with the City
of Anaheim, The Irvine Company, Enron and others. The Company's agreements with
the City of Anaheim give the Company exclusive commercial rights to a 50-mile
fiber loop that serves as the backbone for the Company's Anaheim network. The
Irvine Company agreements give the Company rights to install fiber in existing
conduit within a commercial development known as the "Irvine Spectrum." While
the Company intends to establish additional strategic relationships, it also
intends to enter otherwise attractive markets without such relationships.

MARKET SEGMENTATION APPROACH

The Company believes that the segments within its target markets have
different customer buying patterns, are subject to different competitive factors
and can best be served by different sales and marketing initiatives. The Company
tailors its voice, data, Internet and video offerings, sales and marketing
approach and network development to provide cost-effective service to prime
commercial, basic commercial, wholesale transport and wholesale functionality
customers that it targets.

PRIME COMMERCIAL. Prime commercial customers are large and medium sized
businesses that demand a range of sophisticated voice, data, Internet and video
services. Within the prime customer segment, the Company has chosen to focus on
medium-sized businesses because the Company believes that such businesses
generally are underinvested in LANs and computer systems and undersupported by
information and technology professionals. The Company also has found that
medium-sized businesses have not been aggressively targeted by the Company's
competitors, which have tended to target large and extra large businesses.

The Company believes that its consultative selling approach, diverse service
offerings and customer service will offer prime customers integrated solutions
to their telecommunications and information problems. The Company believes it
adds significant value for prime customers by offering them "one-stop shopping"
for a broad array of advanced voice, video, Internet and data services.
Moreover, the Company believes its ability to diagnose prime customers' needs
through consultative sales efforts and to meet those needs through bundled
service offerings will enhance the Company's reputation for value and build
brand equity. The Company intends to connect prime customers to its networks
through fiber, DSL or unbundled loops, depending on cost effectiveness and
customer needs.

BASIC COMMERCIAL. Basic commercial customers typically are small to medium
sized businesses with minimal demand for data services. The Company believes
that it can best serve basic customers by providing service offerings limited to
dialtone and high-speed Internet access and by using telemarketing, direct mail
or affinity group marketing to reduce sales costs. In addition, the Company
believes that by offering low-cost, limited service offerings to basic
customers, it will establish relationships upon which the Company can base
future efforts to sell more advanced services. The Company intends to rely
primarily upon unbundled loops to connect basic customers to its network.

WHOLESALE TRANSPORT. The Company's wholesale sales force markets dedicated
access and other connectivity services to other service providers such as
out-of-region local exchange carriers, IXCs and other CLECs. The primary
services are DS-0, DS-1(T1), DS-3 and OC-n connectivity within the network
footprint.

WHOLESALE FUNCTIONALITY. The Company markets non-transport
functionality--including advanced switching capabilities, 24-hour network
management services, billing and customer services and Internet

44
<PAGE>
dial-up access--to other service providers. By providing such services, the
Company can serve as a virtual central office to other service providers.

PRODUCTS AND SERVICES

The Company currently offers a wide variety of voice and data services,
including local and long distance telephone service, dedicated/high speed access
service, application support services, video conferencing and basic information
technology services, including system integration services and transparent LAN.
The Company works with its prime commercial customers to develop integrated
bundles of services to best meet their needs. For basic commercial customers,
the Company typically offers a standardized bundle of local and long distance
telephone service and Internet access service.

TELEPHONY

The Company currently provides local and long distance telephone service and
a full range of other narrowband telecommunications services.

LOCAL EXCHANGE. The Company offers local exchange services, including local
dialtone, call forwarding, call waiting and voice mail.

CENTREX/PBX. The Company provides flexible solutions to customers with
multiple telephones. The Company's Centrex services provide call forwarding,
call waiting, line hunting, station conferencing, automatic call-back and call
account tracking. The Company minimizes Centrex customers' capital expenditures
by providing such services through Company-owned equipment housed at the central
office. For large customers or customers with special needs, the Company
integrates customer-owned PBX systems with analog or digital PBX trunks.

LONG DISTANCE, TOLL FREE AND CALLING CARD SERVICES. The Company provides
domestic and international long distance service, toll free services and
operator services.

DEDICATED/HIGH SPEED ACCESS

The Company offers transport and protocol specific services which allow
customers to connect their facilities with their regional offices, customers,
vendors or remote service providers. The Company offers a range of dedicated
access services, including DS-1 (T1) and DS-3 digital channels and optical
carrier services up to and including OC-12. The Company also implements numerous
transmission protocols, including ISDN, Asynchronous Transfer Mode ("ATM"),
frame relay, native speed Ethernet (10 Mbps) and private IP.

APPLICATION SUPPORT SERVICES

INTERNET. The Company currently provides high-speed Internet access at
speeds ranging from 128Kbps to 10Mbps, allowing customers to select the access
speed that best meets their needs. The Company allows customers to choose to pay
based on a flat monthly rate or based upon the bandwidth used.

VALUE-ADDED INTERNET SERVICES. The Company augments its Internet access
services with e-mail, Web hosting, file transfer and user-on-the-road support
services.

VIRTUAL PRIVATE NETWORK. The Company offers its Internet access customers a
virtual private network service, which uses authentication and encryption
software to provide a secure means of accessing corporate information using
dial-up remote access.

VIDEO CONFERENCING. The Company currently offers video conferencing
services and tailors video quality and cost to meet customers' needs.

45
<PAGE>
INFORMATION TECHNOLOGY SERVICES

SYSTEMS INTEGRATION, INTRANET AND SERVER-BASED PRODUCTS. The Company offers
systems integration services, including design, implementation and support of
customer networks. The Company strives to improve functionality of customers'
LANs and reduce their expenditures on LANs by utilizing elements of the
Company's networks and central office. The Company's initial focus has been on
bandwidth management, local area/wide area integration, voice and data
integration and formation of intranets. The Company is developing and intends to
offer a managed desk-top service to allow business customers to use servers
located at the Company's central office instead of building and maintaining
their own networks.

TRANSPARENT LAN. The Company currently offers transparent LAN services that
allow customers to interconnect LANs and support corporate intranets in
metropolitan area networks ("MANs") while maintaining the functionality and, in
many cases, the speed of a LAN. In most cases, the Company provides the CLE to
make such interconnection possible. By supplying the CLE, the Company allows
customers to use the Company's services without the initial capital costs often
associated with connecting remote LANs.

SALES AND MARKETING

Consistent with its market segmentation strategy, the Company uses different
sales channels to target customers within the four market segments identified by
the Company. The Company uses direct sales efforts and a consultative selling
approach with prime commercial customers, direct sales efforts for wholesale
transport and wholesale functionality by customers and more economical methods
such as direct mail and telemarketing to target basic commercial customers. The
Company has allocated responsibilities for such selling efforts among five
different positions within its sales force structure: strategic account manager,
account manager, wholesale account manager, inside sales representative and
building entry manager. Strategic account managers are primarily responsible for
selling a complete line of products and services to prime customers in their
assigned territories. Account managers are responsible for selling pre-set
product bundles or single product solutions to basic customers, usually in
conjunction with the Company's direct mail and telemarketing efforts. Wholesale
account managers sell dedicated transport facilities, among other services, to
wholesale customers. Inside sales representatives are responsible for
telemarketing to potential customers on an ongoing basis to create appointments
for strategic account managers and account managers and assisting with sales
proposals. The Company's building entry manager is responsible for establishing
relationships with property owners and building managers to gain introduction to
their tenants.

DIRECT SALES

The Company uses direct sales efforts to make retail sales to prime
commercial customers and to make wholesale sales of transport and central office
functionality to large businesses, IXCs and other CLECs.

PRIME COMMERCIAL. The Company bases its direct sales efforts to prime
commercial customers on a consultative selling approach, which involves a
systematic assessment of customers' telephony usage, their satisfaction with
their existing LANs, if any, and their general communications needs. Strategic
account managers work closely with customers and the Company's own systems
engineers to develop and implement integrated telecommunications solutions. The
Company attempts to position itself as a long-term business partner able to
solve customers' problems by providing access to current and emerging
technologies through the Company's fiber-based networks. The Company believes
that this process results in the sale of value-added products in addition to
commodity-like services such as local and long distance services. Moreover, the
Company believes that this approach ultimately reduces customer turnover and
differs from the approach adopted by many of the Company's competitors whose
sales are based primarily on price discounting of basic dialtone services. The
Company believes that its consultative sales approach

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<PAGE>
will be particularly successful with respect to sales of the Company's
value-added Internet and transparent LAN services.

WHOLESALE TRANSPORT AND WHOLESALE FUNCTIONALITY. The Company's wholesale
account managers offer wholesale customers, such as large businesses, IXCs and
CLECs, a variety of services ranging from dedicated access to complete local
service. Such sales allow the Company to earn incremental revenue while limiting
the associated sales and marketing expenses. The Company's wholesale sales
objective is to utilize third party sales channels and existing customer
relationships.

DIRECT MARKETING

The Company uses direct mail and telemarketing to sell the Company's
services to basic customers and to generate leads for sales to prime customers.
Account managers build upon such marketing efforts to close sales to basic
customers. The Company typically offers basic customers a bundle of standard
services at a competitive price. For example, the Company recently has offered
basic customers one free year of Internet access service for entering into
two-year contracts for local and long distance services. The Company believes
that when it gains a sale through such methods, it not only generates revenue
from the new customer but also establishes a relationship upon which the Company
may base future efforts to sell higher margin applications.

MARKETING SUPPORT AND COMMUNICATIONS POLICY

The Company supports its direct sales and marketing efforts through the use
of targeted direct mail, regional advertising and its Internet web page. The
Company targets businesses for direct mail efforts through careful demographic
analyses. The Company classifies and prioritizes customers on the basis of their
standard industry classification ("SIC") codes, estimates of their
telecommunications spending and their number of employees. The Company then uses
databases to identify businesses' addresses and decision makers and mapping
tools to pinpoint their locations. By targeting customers in this way, the
Company believes that it can use direct mail in a cost-effective manner to
promote understanding of the Company and its services and to stimulate qualified
leads for the Company's retail sales force. The Company augments its direct mail
efforts through the use of regional advertising aimed at the business community.
Such advertising is designed to create a FirstWorld brand "umbrella" that
reinforces retail sales efforts by generating additional leads, establishing
brand awareness and differentiating the Company from its competitors. The
Company also uses advertising to support the launch of new services as they are
introduced to the marketplace.

CO-MARKETING RELATIONSHIPS

The Company seeks to establish co-marketing arrangements with the
municipalities, property developers and service providers with which it
establishes strategic relationships. The Company expects these co-marketing
relationships to take several different forms, depending on market opportunity.
For example, the Company works with the City of Anaheim's economic development
group to promote the presence of the Company's advanced network to attract new
businesses to the area. The Company intends to work with additional
municipalities to position the Company as the premier ICP to new businesses in
such cities. Similarly, The Irvine Company markets the Company's advanced
network services as an amenity available to tenants. In addition, the Company
and Enron have worked together to offer bundles of telecommunications and
utility services to municipalities and property developers.

As of July 31, 1998, the Company employed 53 persons in sales and marketing.
The Company is in the process of significantly expanding its sales and marketing
staff but intends to continue to be selective in its recruiting, requiring
prospective salespeople to have demonstrated success in telecommunications or
data communications sales. The Company's sales operations are conducted from its
headquarters in San Diego, California and its central office in Anaheim,
California.

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<PAGE>
CUSTOMER RELATIONSHIPS

The Company's goal is to become the premier ICP in the areas it serves, and
to create service offerings that appeal to customers of varying sizes and in a
variety of industries. Management believes that the customer's service purchase
decision is based primarily on the strength of the value proposition offered,
customer service and support, and price of directly comparable service. The
Company currently prices services which are directly comparable to its
competitors' offerings below prevailing market rates to build market share.

For customers served by fiber, the Company generally requires a contract
specifying minimum product usage, pricing and term of service, among other
items. The Company's objective is to reduce the risk associated with capital
deployment of customer located equipment. The Company's contracts generally have
terms of one to three years, depending on total revenue commitment, services
provided and discount or promotional package.

The Company commenced network operations in August 1997 when it brought the
City of Anaheim on line. The Company began providing services to commercial
customers in November 1997, has signed contracts with approximately 100
commercial customers as of July 31, 1998 and has been successful in selling
multiple products including voice and data applications to the majority of these
customers. The Company also provides a full suite of voice, data, dedicated
access and Internet services to the City of Anaheim pursuant to a 30-year
contract. See "--Agreements with the City of Anaheim and The Irvine Company."
While not a primary component of the Company's long-term business plan, the
Company currently sells long distance services to individuals and businesses not
served by the Company's networks.

STRATEGIC RELATIONSHIPS

The Company actively pursues strategic relationships with municipalities,
property developers and service providers as part of its core business strategy.
The Company believes that these relationships can provide it with enhanced brand
identity, access to physical assets, new products and technologies, joint
marketing synergies and other benefits, and thereby accelerate market rollout
and reduce asset deployment, sales costs and customer turnover.

MUNICIPAL RELATIONSHIPS

The Company seeks strategic relationships with municipalities in order to
obtain a network anchor customer, a "local" brand identity, media coverage and,
in certain circumstances, access to physical assets. The Company will, however,
pursue a network rollout into a region without a municipal alliance if the area
is otherwise commercially attractive.

The Company's relationship with the City of Anaheim provides the Company
with the general benefits described above. The Company has exclusive commercial
rights to use the 50-mile fiber loop owned by the City of Anaheim and is now the
primary supplier of local dialtone, long distance, dedicated facilities and
Internet service to substantially all of its municipal facilities. See
"--Agreements with the City of Anaheim and The Irvine Company."

DEVELOPER RELATIONSHIPS

The Company pursues relationships with property developers in order to gain
access to prime commercial customers, to facilitate marketing of the Company's
products and services and, in some cases, to gain access to physical assets.

The Company has developed a strategic relationship with The Irvine Company
to provide service to The Irvine Company's properties located within an area of
commercial properties in Irvine, California known as the "Irvine Spectrum." The
Irvine Company owns and has granted the Company access to 106 prime commercial
buildings within the Irvine Spectrum. The Irvine Spectrum, including the
buildings not owned by The Irvine Company, consists of approximately 25 million
square feet of commercial and

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industrial space. The Company believes the tenant base is comprised of
businesses with greater-than-average demand for advanced telephony and data
communications services. The Irvine Company has granted the Company rights to
install fiber within an extensive existing conduit system, as well as building
access. The Irvine Company also promotes the Company's services in its marketing
materials to current and prospective tenants. The Company and The Irvine Company
also have established a framework for discussions regarding the Company's
providing services to tenants at Irvine Company properties throughout
California. See "--Agreements with the City of Anaheim and The Irvine Company."

SERVICE PROVIDER RELATIONSHIPS

The Company has established and intends to continue to establish
relationships with service providers in complementary industries to create
competitive or innovative products. In general, the Company expects these
service providers to contribute wholesale products, licenses of proprietary
technologies, specialized knowledge, sales and technical support or uniquely
situated fixed assets. In return, the Company generally expects to contribute
its network platform, sales force channels, operational support, engineering
expertise and wholesale purchases.

ENRON. The Company and Enron have an informal collaborative relationship to
jointly market telecommunications and utility services to municipalities,
project developers and other large wholesale markets and have presented a number
of joint proposals to municipalities. The Company believes that this
relationship can provide it with access to new markets, sales synergies and
product development opportunities. In this regard, Enron has commenced a major
initiative in California to compete with incumbent electric utilities to sell
wholesale electricity and utilities management services. Neither the Company nor
Enron is, however, obligated to pursue any opportunity or provide any service to
customers. The Company, however, has granted Enron exclusive rights to pursue
jointly with the Company any business opportunity with both telecommunications
applications and utility applications, and has agreed not to pursue any such
joint opportunity with any person other than Enron. See "Certain Transactions."

NAVISITE. The Company has entered into an agreement with Navi-Site Internet
Services Corporation, a national Internet protocol network ("NaviSite"), calling
for the two companies to establish a remote access MegaPOP at the Company's
central office. The MegaPOP would allow ISPs to provide local dial-up numbers to
customers located within the Southern California area. Under the agreement, the
Company provides power and space to NaviSite in the co-location room in the
Company's central office and helps manage and provision elements of network
connectivity. In return, NaviSite has granted the Company the right to resell
NaviSite's "GeoDial" service to ISPs throughout California and has granted the
Company "most favored purchaser" status, meaning that no other similarly
situated LEC will receive better GeoDial pricing than the Company.

NETWORK ARCHITECTURE AND TECHNOLOGY

The Company has leveraged its substantial internal expertise with respect to
engineering, network creation and business processes to design and construct a
network architecture that it believes will result in enhanced product offerings
and enable the Company to improve scalability, reduce operating cost and improve
network profitability. The Company believes such expertise also will facilitate
the Company's implementation of new technologies. The following diagram
illustrates FirstWorld's network design.

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[LOGO]

CENTRAL OFFICE. The Company's central office in Anaheim is an integrated
computer/telephony facility which serves as the network operating center. The
facility houses a Nortel DMS-500 voice switch, the Company's Internet platform,
product servers primarily related to the Company's data products and co-located
equipment of strategic vendors. The facility has numerous elements of
redundancy, disaster recovery and remote recovery in order to meet or exceed
industry standards of reliability and best practices. The facility operates
24-hours a day and seven days a week. The Company believes the central office
will be sufficient to support its operations throughout Orange County.

TRANSPORT. The Company's networks consist of fiber optic clusters linked to
one another and to the central office through fiber optic backbones. The Company
builds clusters in areas with (i) high concentrations of customers with
sophisticated communications needs and a willingness to pay for direct fiber
connectivity or (ii) a large number of smaller customers that can be aggregated
on a fiber-optic cluster to reduce the Company's cost of service. The Company
uses SONET technology to ensure maximum reliability and continuity of service in
the event of equipment changes or upgrades. Customers are served from nodes or
hubs that are placed in strategic positions throughout the networks. The nodes
also contain redundant electronics that switch automatically to the backup
equipment in the event of a failure to protect the network from signal
deterioration or outages.

The Company uses unmanned access offices as junctions to link network
clusters with the fiber backbone. As the Company expands into new areas, it will
need to install one or two additional access offices per network cluster,
depending on the size of the cluster. Each access office will store network
equipment and its own back-up power source. In addition, the Company has
established a number of remote computer/telephony facilities to interconnect
with the ILEC, IXCs and CLECs.

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CONNECTIVITY. The Company typically connects prime commercial customers to
its networks through direct fiber connections. In such cases, the Company
installs fiber directly to the customer's premises and installs the CLE
necessary to provide the services requested by the customer.

The Company complements its fiber roll-out by leasing unbundled loops from
Pacific Bell and GTE pursuant to interconnection agreements. The interconnection
agreements allow the parties to complete local and intraLATA toll calls on each
other's network and establish rates, terms and conditions for access to
unbundled network elements, resale of local exchange services, service provider
number portability and access to operator service, directory service and 911
service. The Company currently is exploring direct interconnection with the
major CLECs in Orange County, including MFS Communications, TCG, and the major
IXCs.

Although the use of unbundled loops and other connections to reach off-fiber
customers limits the availability of some high-bandwidth products and services,
it enables the Company to serve businesses with its advanced services until
establishing fiber links with such customers becomes economically feasible. The
Company also intends to use wireless links and other transmission technologies
to reach customers when connecting customers through fiber or unbundled loops is
impractical.

OPERATIONAL SUPPORT SYSTEMS

The Company believes its systems exhibit a high degree of scalability to
support network growth, flexibility to support product or technical innovation,
increased reliability and reduced operational cost. Management developed the
Company's business processes with respect to customer service, billing,
provisioning and network management systems based on extensive industry and
engineering expertise within the Company. The Company then developed systems,
incorporated systems from existing external sources and retained third parties
to produce systems meeting the Company's specifications to create integrated
systems that implement the Company's business processes.

CUSTOMER CARE SYSTEM. The Company has developed and is implementing a
Customer Care System designed to perform a wide variety of customer service
functions, including service order creation and tracking, telephone number
administration, trouble reporting and dispatch and billing inquiry. The Customer
Care System is designed to be a "point and click" system. Among other things,
the system simultaneously implements the customer's order, bills the customer
and updates equipment inventory. The Customer Care System allows a single
customer service person to solve most customer problems in real time without
having to refer the call to another department and in the future will allow
members of the Company's sales force to create a customer's service order while
at the customer's premises. The Company also expects that customers in good
standing will be permitted to access the system directly to request new services
beginning in the second quarter of 1999. In addition, the Company has
established a direct link between its Customer Care System and Pacific Bell's
operational support systems, which allows the Company to place orders for
additional unbundled loops directly with Pacific Bell's computers. The Company
believes placing orders electronically eliminates many of the errors that often
result when orders are placed by voice or fax.

To develop the Customer Care System, the Company purchased a basic platform
and then enhanced its functions through joint efforts with the vendor of the
system, ACE*COMM Corporation ("ACE*COMM"). Under an agreement with the Company,
ACE*COMM is required to share with the Company revenues from future licenses of
software containing a substantial amount of the technology developed by it for
the Company up to the total license and service fees paid by the Company
pursuant to the agreement. ACE*COMM also provides data processing services to
the Company, including the preparation of customer invoices, pursuant to a
separate Data Processing Services Agreement.

NETWORK MANAGEMENT SYSTEM. The Network Management System developed by the
Company gives it the ability to monitor its networks from the central office to
customers' premises when customers are connected by fiber. In such cases, the
Network Management System notifies the Company's network

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operations personnel of interruptions prior to, or simultaneously with, the
customer becoming aware of such problems. The Company also intends to deploy
devices currently under development by third parties that would allow the
Company to monitor its connection to customers across unbundled loops. The
Company expects such technology to allow the Company to quickly and efficiently
isolate sources of service disruption on unbundled loops, thereby reducing
system downtime.

NETWORK CONSTRUCTION STATUS AND PROPOSED EXPANSION

ORANGE COUNTY

The Company currently provides on-fiber services to customers connected to
fiber clusters in Anaheim. Additional clusters in Anaheim are either under
construction or authorized for construction with design completed and building
permits obtained. In addition, the Company has started construction within the
Irvine Spectrum area and has begun offering services to buildings in the Irvine
Spectrum. The Company has additional fiber clusters in Santa Ana, Irvine and
Orange that are currently under design, permitting or construction.

The Company also currently provides off-fiber service to customers located
around two Pacific Bell central offices located in Anaheim through Pacific Bell
unbundled copper loops. The Company has applied for interconnections with
additional Pacific Bell central offices in Orange County by co-locating the
Company's equipment at such central offices in order to expand the areas in
which it can offer off-fiber services. These interconnections, which the Company
began establishing during the third quarter of 1998, will allow the Company to
offer services through Pacific Bell unbundled loops to businesses in most parts
of Orange County.

SAN GABRIEL VALLEY AND SOUTH BAY

The Company has commenced design, permitting and construction of fiber
clusters in the cities of Glendale, Burbank and Pasadena, which are located in
the San Gabriel Valley near Los Angeles, and in the City of Torrance, in the
South Bay area near Los Angeles. The Company anticipates that the San Gabriel
Valley and South Bay areas each will require a central office with its own
DMS-500 or equivalent switch. The Company also intends to co-locate equipment
with Pacific Bell central offices in both the San Gabriel Valley and the South
Bay areas. The Company has determined that such areas are home to high
concentrations of businesses with telecommunications and information needs
addressed by the Company's services. In addition, businesses in such areas tend
to be clustered together in business parks, which would allow the Company to
utilize its strategy of maximizing revenues from its installed base of fiber.

FUTURE EXPANSION

In addition to its planned networks in Orange County and the San Gabriel
Valley and South Bay areas of Los Angeles County, the Company intends
selectively to expand into additional markets by replicating the primary tenets
of its business plan. The Company will target future expansion based on analysis
of the number and density of businesses with heavy telecommunications usage in a
given area and current and anticipated competition from other telecommunications
providers. The Company has identified additional cities, both within and outside
of California, which it believes would be attractive markets for future
expansion. These target areas and their priority for expansion are subject to
continual re-evaluation in response to refinements in the Company's expansion
criteria and changes in the communications industry and in general economic
conditions. At this time, the Company has not made a decision regarding any
specific areas for future expansion beyond Orange County, San Gabriel Valley and
South Bay.

COMPETITION

In each market area in which the Company is authorized to provide services,
the Company competes or will compete with several other service providers and
technologies. Most of the Company's competitors, particularly ILECs, have
long-standing relationships with customers and suppliers in their respective

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industries, greater name recognition and significantly greater financial,
technical, marketing and other resources than the Company. The Company expects
to compete on the basis of service features, quality, price, reliability,
customer service and rapid response to customer needs.

TELEPHONY. The telephony services offered by the Company compete
principally with the services offered by ILECs in the areas served by the
Company's networks. The Company also competes with various CLECs in its target
markets, including MFS Communications, NEXTLINK, ICG, GST and Teleport. The ILEC
dominates each of the markets targeted by the Company. ILECs possess ubiquitous
infrastructure and the financial wherewithal to subsidize unprofitable deals to
maintain key customers. The Company competes with ILECs on the basis of price,
customer support and the ability to offer and provide value-added, integrated
service bundles. The Company has found that its CLEC competitors, unlike the
ILEC, tend to focus on particular segments within the market. The Company
competes with CLECs and ICPs by providing a variety of voice, data and Internet
services in different combinations to address the needs of different market
segments.

The Company also faces, and expects to continue to face, competition from
other current and potential market entrants, including AT&T, MCI, Sprint,
WorldCom and other IXCs, wireless telephone system operators and private
networks built by large end users. AT&T has indicated its intention to offer
local telecommunications services in certain U.S. markets, either directly or in
conjunction with CLECs or cable operators. In January 1998 AT&T announced a plan
to acquire Teleport. The deal, if consummated, would allow AT&T to sell
integrated local, long-distance and data communications services to businesses
in the areas served by Teleport. AT&T has also announced plans to merge with
TCI, the nation's largest operator of cable television systems, and to provide
telephone services over the TCI cable plant. Sprint recently announced plans to
deploy an advanced telecommunications network intended to boost speed and
capacity, cut costs and provide an integrated platform to enter local markets,
and has signed access agreements with a number of RBOCs and GTE. WorldCom has
acquired MFS Communications and Brooks Fiber Properties, Inc., both major CLECs,
and, most recently, MCI. Ameritech and US West have also announced plans to
enter the long distance market by forming joint sales ventures with Qwest, a
growing provider of fiber optic-based telecommunications services. Although
these particular deals with Qwest have been declared unlawful by the FCC as a
result of actions brought by AT&T and MCI, they remain subject to ongoing
judicial and FCC review, and a continuing trend toward combinations and
strategic alliances in the telecommunications industry, including combinations
or potential consolidations among RBOCs or CLECs, or between IXCs and CLECs,
could give rise to significant new competitors for the Company. The Company also
expects increased competition from ILECs operating outside of their current
local service areas, cable television systems, electric utilities, microwave and
other wireless carriers and satellite licensees. In addition, sweeping changes
mandated by the Telecommunications Act will facilitate entry by new competitors
into local exchange and exchange access markets, including requirements that
ILECs make available interconnection and unbundled network elements at
cost-based rates, and resell their services to requesting competitors at
wholesale discounts.

ADVANCED NETWORK SERVICES. In the markets for data services and other
advanced network services, the Company will face competition from a number of
companies focused on the LAN and WAN market,

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including companies with significantly greater financial resources, more
extensive business experience, and greater market and service capabilities than
the Company. In particular, the Company will be required to compete with
companies that design and manufacture products for the LAN and WAN markets and
large system integrators.

Substantially all of the Company's current and prospective competitors in
the markets for advanced networking services have substantially greater market
presence and financial, technical, marketing and other resources than the
Company. See "Risk Factors--Competition."

REGULATION

OVERVIEW

The Company's services are subject to regulation by federal, state and local
governmental agencies. The Company has obtained all authorizations and approvals
necessary to conduct its operations as currently structured and believes that it
is in compliance with all laws, rules and regulations governing its current
operations. Nevertheless, changes in existing laws and regulations or any
failure or significant delay in obtaining necessary future regulatory approvals,
could have a material adverse effect on the Company's business, financial
condition and results of operations.

At the federal level, the FCC has jurisdiction over interstate and
international telecommunications services. State regulatory commissions have
jurisdiction over intrastate communications. Municipalities and other local
jurisdictions may regulate limited aspects of the Company's business by, for
example, regulating the use of rights-of-way, imposing zoning and franchise
requirements, and requiring installation permits. The Company also is subject to
taxation at the federal and state levels and may be subject to varying taxes and
fees from local jurisdictions.

FEDERAL LEGISLATION

THE TELECOMMUNICATIONS ACT OF 1996. The Telecommunications Act, enacted on
February 8, 1996, substantially departs from prior legislation in the
telecommunications industry by establishing local exchange competition as a
national policy through the removal of state regulatory barriers to competition
and the preemption of laws restricting competition in the local exchange market.
The Telecommunications Act, among other things, mandates that (i) ILECs permit
resale of their services and facilities on reasonable and nondiscriminatory
terms and at wholesale rates, (ii) all LECs (including the Company) allow
customers to retain the same telephone number ("number portability") when they
switch local service providers, (iii) ILECs permit interconnection by
competitors to an ILEC's network at any technically feasible point that is at
least equal in quality to that which the ILEC provides to itself and pursuant to
reasonable and nondiscriminatory terms and cost-based rates, (iv) ILECs unbundle
their network services and facilities at any technically feasible point and
permit competitors and others to use these facilities at cost-based, reasonable
and nondiscriminatory rates, (v) all LECs ensure that an end user does not have
to dial any more digits to reach customers of local competitors than to reach
the ILEC's customers to the extent technically feasible ("dialing parity") and
(vi) all LECs must establish reciprocal compensation arrangements for the
transport and termination of telecommunications traffic.

The Telecommunications Act permits RBOCs to provide out-of-region interLATA
long distance services immediately, and also allows RBOCs to provide in-region
interLATA services on a state-by-state basis once certain market-opening
requirements are implemented and entry is determined to be in the public
interest. The RBOCs, but not other ILECs, have an added incentive to open their
local exchange networks to facilities-based competition because Section 271 of
the Telecommunications Act provides for the removal of the current ban on RBOC
provision of in-region interLATA toll service only after meeting certain
requirements. The FCC, in consultation with the United States Department of
Justice and the states, is given jurisdiction to determine whether to approve
applications for RBOC entry into long distance. These provisions of the
Telecommunications Act are designed in part to ensure that RBOCs take
affirmative steps to level the playing field for their competitors so that
others can compete effectively

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before the RBOC secures in-region long-distance entry. To date, three RBOCs have
filed applications with the FCC for "in-region" long distance authority. The FCC
denied the application of SBC with respect to Oklahoma in June 1997; denied the
application of Ameritech in August 1997 with respect to Michigan; and denied
applications filed by BellSouth for South Carolina and Louisiana in December
1997 and February 1998, respectively. Another application filed by BellSouth for
Louisiana remains pending, and Pacific Bell reportedly is working with the
California PUC to meet 271 requirements in anticipation of its own FCC
application. Several entities have sought reconsideration of the FCC's decisions
and some have initiated litigation claiming, among other things, that Section
271 of the Telecommunications Act is unconstitutional, that the FCC has exceeded
its jurisdiction, and that the FCC has violated the Eighth Circuit's ruling on
the Interconnection Orders (discussed below) in several respects, e.g., by
effectively promulgating national pricing standards. In addition, certain
aspects of the Section 271 RBOC entry requirements remain subject to FCC review.
See "--Federal Regulation."

RBOC entry into long distance services under Section 271 of the
Telecommunications Act has, over the past year, also become a contentious
political issue. Several ranking members of Congress, including Rep. John
Dingell (D-MI) and Rep. W.J. "Billy" Tauzin (R-LA), have voiced strong
frustration at what they allege is an unwillingness by the FCC to grant RBOC
applications for long distance authority. In response, William Kennard, Chairman
of the FCC, announced in early 1998 that the FCC will, in the future, take a
more "cooperative" position with respect to RBOC applications under Section 271
of the Telecommunications Act and work closely with each RBOC to identify and
resolve issues arising in connection with RBOC entry into the long distance
service market. It is not certain at this time whether Chairman Kennard's
announcement indicates that, in the future, the FCC is prepared to grant RBOC
applications for in-region provision of interLATA long distance services.

The U.S. District Court for the Northern District of Texas declared Section
271 unconstitutional in late December 1997. The district court's decision was
reversed by the United States Court of Appeals for the Fifth Circuit in
September 1997. However, if any subsequent United States Supreme Court review
affirms the district court's ruling, Pacific Bell, among other RBOCs, will be
able to provide more services to customers, making it an even more formidable
competitor for the Company. See "Risk Factors-- Competition."

Under the Telecommunications Act, states have begun and, in a number of
cases, completed regulatory proceedings to determine the pricing of unbundled
network elements and services, and the results of these proceedings will
determine whether it is economically attractive to use these elements.

FEDERAL REGULATION

THE TELECOMMUNICATIONS ACT REGULATIONS. The Telecommunications Act in some
sections is self-executing, but in most cases the FCC must issue regulations
that identify specific requirements before the Company and its competitors can
proceed to implement the changes the Telecommunications Act prescribes. The
Company actively monitors pertinent FCC proceedings and has participated in some
of these proceedings (including the restructuring of access charges, the
application of access charges to Internet traffic and RBOC petitions for the
deregulation of ILEC-provided DSL services). The outcome of these various
ongoing FCC rulemaking proceedings or judicial appeals of such proceedings could
materially affect the Company's business, financial condition and results of
operations.

As required by the Telecommunications Act, in July and August 1996 the FCC
adopted orders issuing new rules to implement the interconnection and resale
provisions of the Telecommunications Act (the "Interconnection Orders") which
are intended to remove or minimize regulatory, economic and operational
impediments to full competition for local services, including switched local
exchange service. A number of parties filed petitions for review of the
Interconnection Orders in Federal court seeking to vacate certain of the rules
adopted therein. In a July 18, 1997 decision, the United States Court of Appeals
for the Eighth Circuit vacated significant portions of the Interconnection
Orders, including its provisions governing the pricing of local
telecommunications services and unbundled network elements, its

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unbundling requirements and its "pick and choose" rule (which enabled a
telecommunications carrier to demand any individual term of an ILEC's
interconnection contract with another carrier). Another Eighth Circuit decision
issued on October 14, 1996 vacated an FCC rule that obligated ILECs, under
certain circumstances, to provide combinations of network elements, rather than
provide them individually. This decision may make it more difficult or expensive
for competitors to use combinations of ILEC unbundled elements. On August 22,
1997, the Eighth Circuit vacated the FCC's interconnection rules implementing
the Telecommunications Act dialing parity requirement for LECs. In November
1997, the FCC, AT&T, MCI, and a number of CLECs sought review of the Eighth
Circuit's decisions by the Supreme Court. The RBOCs and GTE also
cross-petitioned for Supreme Court review of several aspects of the
Interconnection Orders that were upheld by the Eighth Circuit in the event
Supreme Court review were granted. While these petitions were pending, the
Eighth Circuit on January 23, 1998, found that the FCC had violated the terms of
its July decision, and ordered the FCC to cease imposing its local pricing rules
on RBOCs attempting to enter the long distance market under Section 271 of the
Act. On January 26, 1998, the Supreme Court agreed to review the Interconnection
Orders, with oral argument calendared for October 1998. A Supreme Court decision
in the cases is not expected until some time in late 1998 or 1999.

The Eighth Circuit decisions and Supreme Court grant of review create
uncertainty about individual state rules governing pricing and other terms and
conditions of interconnection agreements and could make negotiating and
enforcing such agreements in the future more difficult and protracted. They also
could require renegotiation of relevant provisions of existing interconnection
agreements, or subject them to additional court or regulatory proceedings.
Although the Company generally believes that the outcome of the these judicial
proceedings will not have a material adverse effect on its business and
operations, there can be no assurance that this will be the case.

In July 1996, the FCC mandated that over the course of the next year
responsibility for administering and assigning local telephone numbers be
transferred from the RBOCs and a few other ILECs to a neutral entity. In August
1996, the FCC issued regulations which address certain of these issues, but
leave others for decision by the states and the neutral numbering plan
administrator, Lockheed-Martin IMS, which in August 1997 was designated by the
FCC. The FCC numbering decisions, among other things, (a) prohibit states from
creating new area codes that could unfairly hinder LEC competitors (including
the Company) by requiring their customers to use 10 digit dialing while existing
ILEC customers use 7 digit dialing, and (b) prohibit ILECs (which in many cases
are still administering central office numbers pending an operational transition
to the neutral administrator) from charging "code opening" fees to competitors
(such as the Company) unless they charge the same fee to all carriers including
themselves. In addition, each carrier is required to contribute to the cost of
numbering administration through a formula based on net telecommunications
revenues. In July 1996, the FCC released rules to permit both residential and
business customers to retain their telephone numbers when switching from one
local service provider to another (known as "number portability"). RBOCs were
required to implement number portability in the top 100 markets in five phases
beginning no later than March 31, 1998 and to complete it no later than December
1998, although the FCC has granted numerous waivers of these implementation
deadlines. In smaller markets, RBOCs must implement number portability within
six months of a request therefore commencing December 31, 1998. Non-RBOC ILECs
are not required to implement number portability in any additional markets until
December 31, 1998, and then only in markets where the feature is requested by
another ILEC. The Company's initial service areas in Orange County are scheduled
to have permanent local portability implemented by October 1, 1998.

In addition, pursuant to the Telecommunications Act, the FCC issued new
regulations in 1997 regarding the implementation of the universal service
program and the assessment of charges on carriers obtaining access to local
exchange networks. Both the access charge and universal service regimes were
substantially revised. As a result of these changes, the costs of business and
multiple residential lines are expected to increase. Several parties have sought
FCC reconsideration or judicial review of various parts of the new FCC rules,
including the revenue basis on which universal service contributions are
determined. The FCC is currently examining whether IXCs and CLECs will be
permitted, and if so in what manner and

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to what extent, to pass through universal service charges to end users as line
item surcharges on bills for telecommunications services. In addition, in June
1998 the FCC announced that it was restructuring and narrowing universal support
for provision of Internet services to schools, libraries and rural health care
providers. As a result of this rapidly changing environment, the Company is
unable to predict how the FCC's universal service and access charge reforms will
be finally implemented or enforced, or what effect they will have on competition
within the telecommunications industry, generally, or on the competitive
position of the Company, specifically. The Company also is unable to accurately
predict the final formula for universal service contribution or its own level of
contribution in 1999 and beyond.

The Telecommunications Act requires the FCC to streamline its regulation of
ILECs and permits the FCC to forbear from regulating particular classes of
telecommunications services or providers. Since the Company is a non-dominant
carrier and, therefore, is not heavily regulated by the FCC, the potential for
regulatory forbearance likely will be more beneficial to ILECs than the Company
in the long run. In June 1997, the FCC granted the request of a CLEC that the
FCC forbear from imposing tariff filing requirements on exchange access services
provided by carriers other than ILECs. The FCC has sought further comment on
whether to mandate the detariffing of exchange access services. The proceeding
remains pending, and there can be no assurance how the FCC will rule on this
issue, or what effect any such ruling may have on competition within the
telecommunications industry generally, or on the competitive position of the
Company specifically.

There also is a risk that Telecommunications Act requirements that currently
work in the Company's favor may be implemented differently in the future
depending on marketplace developments. For example, many CLECs such as the
Company have begun to acquire an increasing number of ISP customers. This
development in turn has resulted in a rapid increase in Telecommunications
Act-mandated reciprocal compensation charges paid by ILECs to CLECs to terminate
the calls of ILEC customers to CLEC ISP customers. ILECs led by the RBOCs
currently are pursuing action in the courts and before state PUCs and the FCC to
address this issue. The outcome of such actions is uncertain, but could have a
material adverse effect on the Company.

Section 706 of the Telecommunications Act requires the FCC to initiate a
proceeding to address the provision of "advanced telecommunications services" to
all Americans. In early 1998, several RBOCs (Bell Atlantic, Ameritech, BellSouth
and SBC) filed petitions with the FCC seeking forbearance from FCC and state
regulation of their DSL high-speed data services. The RBOCs also seek an FCC
ruling under Section 706 that elements of their DSL services are not subject to
the interconnection, unbundling and resale requirements of the
Telecommunications Act. In response to these petitions, the FCC on August 6,
1998 proposed that RBOCs be permitted to offer DSL services on an unregulated
basis if certain separate subsidiary and interconnection requirements are met.
Although the Company does not, at the present time, anticipate utilizing RBOC
DSL or other high-speed services under its interconnection agreements, any grant
of regulatory relief by the FCC would likely permit Pacific Bell to introduce
DSL-based services, in competition with the Company, on a more rapid basis and
at reduced costs to Pacific Bell than under current regulatory rules. There can
be no assurance that these or similar RBOC regulatory initiatives regarding
broadband service provision would not have a material adverse effect on the
Company's business, financial condition and results of operations.

STATE REGULATION

Many of the Company's services will be classified as intrastate services
subject to state regulation. All of the states where the Company operates, or
will operate, require some degree of state regulatory commission approval to
provide certain intrastate services. In most states, intrastate tariffs are also
required for various intrastate services, although the Company is not typically
subject to price or rate of return regulation for tariffed intrastate services.
The Company may also be subject to a variety of other state regulatory
requirements, including interconnection, universal service, reporting and
customer service requirements.

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The Telecommunications Act requires each state to remove barriers to entry
and barriers to competition for ILEC competitors. While no assurance can be
given as to how quickly and how effectively each state will act to implement
this legislation, many state authorization processes are being streamlined and
the authorization time frames shortened considerably. Several states have
allowed ILECs rate, special contract (selective discounting) and tariff
flexibility, particularly for services deemed subject to completion. Such
pricing flexibility increases the ability of the ILEC to compete with the
Company and constrains the rates that the Company may charge for its services.
In view of the additional competition expected to result from the
Telecommunications Act, states may grant ILECs additional pricing flexibility.
At the same time, some ILECs may request increases in local exchange rates to
offset revenue losses due to competition.

Under the Telecommunications Act, if a request is made by the Company, ILECs
generally have a statutory duty to negotiate interconnection and access
arrangements in good faith for the Company's provision of local service (unless
they are exempted from such requirement as small or rural ILECs). The Company
has completed interconnection agreements with Pacific Bell and GTE for
California. During these negotiations, the Company or the ILEC may submit
disputes to the state regulatory commissions for mediation and, after the
expiration of the statutory negotiation period set forth in the
Telecommunications Act, the parties may submit outstanding disputes to the
states for arbitration. To date the Company has not submitted any disputes to
the states for mediation or arbitration.

LOCAL REGULATION

The Company will need to interact with local governments in a variety of
ways, and may be required to obtain various permits and authorizations from
municipalities in which it operates. How diverse local governments will exercise
traditional functions, including zoning, permitting and management of rights of
ways, and address the expansion of telecommunications competition and varying
means of entry in particular, is uncertain. The kinds and timing of approvals
required to conduct aspects of the Company's business varies among local
governments and may also vary with the specific technology or equipment
configuration used by the Company.

While the Telecommunications Act permits local governments to manage rights
of way, the scope of that authority, including the circumstances when fees can
be charged and the amount of such charges, has already been the subject of
numerous disputes between telecommunications carriers and such local
governments. In addition, some local governments have been requiring substantial
filings and review before telecommunications carriers can operate in their
licensed areas and have also required the payment of significant franchise fees
or taxes. Some of these disputes involving licensing of telecommunications
carriers and rights of way are in litigation and more administrative and court
litigation is likely. The prohibition of entry barriers set forth in the
Telecommunications Act and the FCC's power to preempt such barriers have been
addressed in these cases, which to date have rejected local government efforts
to impose "franchise" or tax obligations on CLECs and other telecommunications
carriers. The FCC has recently preempted, and thereby prevented enforcement of,
certain state and local regulations that had the effect of inhibiting local
competition. Any inability or unwillingness by the FCC to preempt additional
state and local regulations in a timely fashion could have a material adverse
impact on the Company.

AGREEMENTS WITH THE CITY OF ANAHEIM AND THE IRVINE COMPANY

THE CITY OF ANAHEIM

The Company, its wholly owned subsidiary, FirstWorld Anaheim ("FWA"), and
the City of Anaheim (the "City") entered into a series of agreements in February
1997 regarding development of the first portion of the Company's initial network
located within the City (the "Anaheim Network").

AGREEMENT FOR USE OF OPERATING PROPERTY. Pursuant to an Agreement For Use
of Operating Property (the "Operating Property Agreement"), FWA leases from the
City 60 of 96 fiber strands contained in an approximately 50 mile long loop of
fiber optic cable owned by the City, together with related facilities and

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rights. The term of the agreement runs through December 31, 2027, and during
calendar year 2011 the parties are obligated to negotiate in good faith
concerning a possible 15-year extension of the term (through December 31, 2042).

The remaining 36 fiber strands within the cable (the "Reserved Fibers") are
reserved by the City for its own use in providing municipal services (i.e., uses
that are not competitive with FWA's commercial uses). If the City determines
from time to time that some portion of the Reserved Fibers is not required for
municipal services, then the City and FWA are to negotiate in good faith the
terms and conditions on which that portion of the Reserved Fibers will be leased
to FWA. In any event, the City can use the Reserved Fibers only for municipal
services unless FWA fails to proceed with development of the third phase of the
Anaheim Network (as described below) and the City proceeds with the development
of the third phase of the Anaheim Network for its own account, as described
below.

As rent for the 60 strands of fiber, FWA is obligated to make quarterly
payments to the City of approximately $114,000. In addition, FWA is obligated to
pay all costs associated with operating and maintaining the leased property,
including maintenance expenses, taxes, insurance premiums and pole usage fees.
FWA also is obligated to maintain and insure the leased property and the City's
Reserved Fibers (except to the extent the Reserved Fibers are located on certain
identified City-owned premises, such as electrical substations), subject to the
City's obligation to reimburse FWA for a pro rata share of maintenance and
insurance costs (computed based on the number of Reserved Fibers relative to the
total of 96 fibers).

FWA has the right to assign its rights under the Operating Property
Agreement, but will not be released from liability unless the City expressly
consents. FWA also has the right to encumber its interest in the leased
property. FWA's interest in the leased property is not currently encumbered.

UNIVERSAL TELECOMMUNICATIONS SYSTEM PARTICIPATION AGREEMENT. Concurrently
with the execution of the Operating Property Agreement, the City, FWA and the
Company executed the UTS Agreement which sets forth guidelines for FWA's
development and operation of the Anaheim Network and compensation payable to the
City by FWA. The term of the UTS Agreement runs through December 31, 2027, and
during calendar year 2011 the parties are obligated to negotiate in good faith
concerning a possible 15-year extension of the term (through December 31, 2042).

The UTS Agreement provides that FWA will construct the Anaheim Network in
three phases. The first phase extended service to identified municipal
facilities and was substantially completed in October 1997. The second phase
requires service to be extended in the ordinary course of business (I.E., within
six months following execution of a customer service agreement) to commercial,
industrial and governmental customers within certain defined service areas. The
Company was required to complete 44% of the first and second phases by April 1,
1998 and is further required to complete 90% of the first and second phases by
December 31, 1998, plus a 180-day cure period in each case. The Company
constructed and installed sufficient fiber to satisfy the 44% completion
requirement prior to April 1, 1998 and expects completion of the fiber clusters
currently under construction and approved for construction to satisfy the 90%
completion requirement in a timely manner. See "--Network Construction Status
and Proposed Expansion."

The third phase of the Anaheim Network requires that service be extended in
the ordinary course of business to all customers within Anaheim, including
residential customers. This phase will be commenced only after the feasibility
of the third phase is validated by an independent consultant's report and
financing is arranged. FWA has agreed to cause a feasibility study with respect
to the third phase to be completed by no later than January 1, 2000, and
thereafter to prepare annual updates of the study if necessary. If FWA
determines not to proceed with the development of the third phase of the Anaheim
Network, or if for any reason the principal financing for the third phase is not
funded or construction of the third phase is not commenced by December 31, 2002,
then the City may pursue development of the third phase on its own (including in
a business arrangement with third parties). If the City closes the principal
financing for or

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commences construction of the third phase, then the provisions of the Operating
Property Agreement prohibiting the City from using the Reserved Fibers for other
than municipal services terminate.

Under the UTS Agreement, the City is obligated, with specified exceptions,
to utilize FWA as the provider of all of the City's telecommunications services,
and to provide FWA with certain rights-of-way. The UTS Agreement requires FWA to
pay to the City (i) an annual payment in lieu of a franchise fee based on a
percentage of FWA's "adjusted gross revenues," as defined, related to the
Anaheim Network, subject to a minimum annual payment of $1,000,000 for periods
after June 30, 1999, (ii) a percentage of FWA's "net revenues," as defined,
derived from the Anaheim Network, (iii) certain of the City's annual operating
costs associated with the UTS Agreement, not to exceed $175,000 per year prior
to the commencement of the third phase of the Anaheim Network, and not to exceed
$350,000 per year thereafter (as adjusted annually to reflect changes in the
cost of living), and (iv) $20,000 per year (adjusted annually to reflect changes
in the cost of living) to support the City's presence on the Internet. The UTS
Agreement also requires the Company to deposit an amount equal to up to 15% of
"net revenues" derived from the Anaheim Network to maintain a $6,000,000 reserve
account for debt service and capital improvements.

The UTS Agreement originally required FWA to commence construction of a
demonstration center in the City's downtown area by August 20, 1998, and to
complete the demonstration center by June 30, 1999. However, in connection with
a significant expansion of the proposed scope of the project, the Company, FWA
and the City are currently negotiating extensions of such deadlines.
Contemplated plans now include the construction of an approximate 56,000 square
foot building which will include the demonstration center and FirstWorld
offices.

The City has an option to purchase all of the issued and outstanding stock
of FWA for appraised value (i) at any time after July 1, 2012 or (ii) if FWA
fails to meet the specified performance deadlines related to completion of the
first and second phases of the Anaheim Network as described above. Any sale or
issuance of FWA stock can only be made if such sale or issuance is expressly
made subject to the City's purchase option. Moreover, any sale of the Anaheim
Network or other sale of substantially all of FWA's assets can only be made if
the City is equitably compensated for the loss of its future income stream under
the UTS Agreement or the buyer expressly assumes the obligations of FWA under
the UTS Agreement.

DEVELOPMENT FEE AGREEMENT. Pursuant to a Development Fee Agreement between
the Company and the City, for a period of five years commencing with the earlier
to occur of the closing of the financing for, or the commencement of,
construction of the first Additional Network (as defined below), the Company
must pay to the City a lump sum fee for each Additional Network that the Company
develops ($300,000 for each Additional Network financed in the first year;
$200,000 for each Additional Network financed in the second year; and $100,000
for each Additional Network financed in the third, fourth and fifth years)
(each, a "Development Fee"). Each Development Fee must be paid within 30 days
after the closing of the principal financing for an Additional Network or the
commencement of construction of such Additional Network, whichever occurs first.
"Additional Network" means (a) any expansion of the Anaheim Network into one or
more adjacent or nearby cities where FWA enters into a revenue sharing agreement
with any such city, and (b) any separate communications system developed by any
other subsidiary of the Company that holds a Certificate of Public Convenience
and Necessity issued by the California Public Utilities Commission and enters
into a revenue sharing agreement with one or more public entities. No such fee
is due, however, with respect to the Company's relationship with The Irvine
Company because it is not a public entity.

THE IRVINE COMPANY

FirstWorld Orange Coast ("FWOC"), a wholly-owned subsidiary of the Company,
and The Irvine Company entered into two agreements in February 1998 regarding
FWOC's development of a network to serve certain areas that have been or are
planned to be developed by The Irvine Company (the "Irvine Network").

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AGREEMENT FOR LEASE OF TELECOMMUNICATIONS CONDUIT

Pursuant to an Agreement for Lease of Telecommunications Conduit dated as of
March 5, 1998 (the "Conduit Lease"), FWOC leases from The Irvine Company space
within two underground telecommunications tubes (the "Conduit"), and, in
connection therewith, has received the non-exclusive right to use undivided
space within the pull boxes serving such Conduit (collectively, the "Leased
Premises"). The Conduit Lease applies to (i) an existing Conduit system within
certain already-developed areas in the Irvine Spectrum and (ii) Conduit to be
constructed in the future in the as yet undeveloped areas of the Irvine
Spectrum. The Irvine Company may also install Conduit in other areas it may
develop in the cities of Irvine, Newport Beach and Tustin, and in unincorporated
areas of Orange County, and such areas may in the future be incorporated into
the Conduit Lease upon the mutual agreement of the parties ("Additional Areas").
The term of the Conduit Lease runs through December 31, 2027.

The Conduit Lease obligates FWOC to install fiber optic cable ("Cable") in
the Conduit pursuant to a phasing plan. A phase is completed when sufficient
Cable has been installed to enable FWOC to connect and provide service (for that
portion of the Irvine Network) to property abutting the Conduit. Upon
termination of the Conduit Lease, the Cable will be owned by The Irvine Company.
If FWOC fails to complete installation of the required Cable within 18 months,
The Irvine Company may, until such installation is completed, terminate the
Conduit Lease.

FWOC is obligated to make quarterly rent payments to The Irvine Company
based upon the "adjusted gross revenue" (as defined) from the Irvine Network. In
addition, FWOC is obligated to pay all costs associated with its lease,
operation, maintenance, repair and use of the Leased Premises, including
maintenance expenses, taxes and insurance premiums. Any assignment of FWOC's
rights under the Conduit Lease and any sale of a controlling interest in FWOC
require The Irvine Company's prior approval, and The Irvine Company has a right
of first refusal in the event of any such proposed sale.

TELECOMMUNICATIONS SYSTEM LICENSE AGREEMENT

Concurrently with the execution of the Conduit Lease, FWOC and The Irvine
Company executed a Telecommunications System License Agreement (the "License
Agreement"), which provides FWOC, with some exceptions, with the right and
obligation to provide telecommunications services to (i) the 106 buildings
currently owned by The Irvine Company in the Irvine Spectrum area, (ii)
commercial, industrial and retail buildings in the future owned by The Irvine
Company in the Irvine Spectrum, and (iii) under certain circumstances in The
Irvine Company's discretion, similar buildings located in the Additional Areas
and other locations in California.

The License Agreement requires FWOC to pay The Irvine Company a license fee
each calendar quarter, subject to an annual CPI increase that will not be less
than 2% or greater than 6%. The license fee will increase or decrease in the
future based on the rentable square footage of the buildings that are from time
to time subject to the License Agreement.

The License Agreement provides FWOC with the right to install, maintain,
operate, replace and remove Cable and associated communications equipment
("Equipment") in, as well as access rights to, such buildings, subject to the
rights of The Irvine Company's tenants and to reasonable requirements and
procedures imposed by The Irvine Company. Except with respect to buildings that
are leased to a single tenant, The Irvine Company is required to provide FWOC
with a reasonable amount of equipment room space in each building, sufficient to
enable FWOC to install Cable and Equipment and deliver services. FWOC's rights
to a building are non-exclusive, meaning that The Irvine Company can grant
similar licenses to other service providers. Although all the Cable becomes the
property of The Irvine Company upon termination of the License Agreement, FWOC
has the right to remove and retain ownership of the Equipment, subject to The
Irvine Company's election to purchase the Equipment at a price to be negotiated
by the parties.

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Subject to certain qualifications, FWOC will have the obligation to provide
telecommunications services to any tenant who wishes to subscribe with FWOC for
those services, and FWOC is required to install Cable and Equipment in that
tenant's building if FWOC owns or leases Conduit located within 1,000 feet of
that building. Under certain circumstances, FWOC may be required to provide
completion and performance bonds to The Irvine Company in connection with that
work.

To the extent that FWOC provides fiber optic service to a building, it is
required to achieve and maintain standards of minimum reliability. Subject to
force majeure, if there is a system-wide failure to provide such service that
exceeds five consecutive days, The Irvine Company has the right to use the
network (and if necessary bring in an alternative service provider) and to
charge its costs to FWOC.

Whenever FWOC is the first competitive access provider to a building, it is
required to install a building entrance conduit system (which connects the
building to the street access point) (a "BECS"), with a capacity equal to 200%
of the capacity required by FWOC to service the building. The Irvine Company can
grant other providers the right to use that BECS, but must pay or cause that
provider to pay FWOC 50% of FWOC's cost of installing the BECS, which costs are
subject to increase based on a CPI calculation. Where a BECS already exists, The
Irvine Company must make any excess capacity therein available to FWOC.

The Conduit Lease and the License Agreement both require FWOC to maintain
certain minimum amounts of insurance coverage throughout the term of such
agreements. The Company has guaranteed the payment obligations of FWOC under The
Irvine Company agreements.

EMPLOYEES

As of July 31, 1998, the Company had 135 employees, of whom 54 were in
network operations and development, 53 were in sales, marketing and product
development and 28 were in administration. The Company believes that its future
success will depend in part on its continued ability to attract, hire and retain
qualified personnel. Competition for such personnel is intense, and there can be
no assurance that the Company will be able to identify, attract and retain such
personnel in the future. None of the Company's employees are represented by a
labor union or are the subject of a collective bargaining agreement. The Company
has never experienced a work stoppage and believes that its employee relations
are good.

PROPERTIES

The Company's headquarters are located in facilities consisting of
approximately 35,000 square feet in San Diego, California, which the Company
occupies under a lease that expires on August 31, 2002. The Company's central
office in Anaheim, California occupies approximately 8,900 square feet of space
under a lease expiring on October 31, 2001. In addition, pursuant to its
agreement with the lessor of the central office, the Company has (i) the option
to purchase the central office through October 1998 for approximately $600,000
and (ii) a right of first refusal to purchase the central office during the term
of the lease and any extensions thereof. The Company also leases offices and
space in a number of other locations for sales offices and network equipment
installations.

LEGAL PROCEEDINGS

The Company is not a party to any legal proceedings.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company and their ages as of May
31, 1998 are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --------- --------------------------------------------------------------
<S> <C> <C>
Donald L. Sturm........................... 66 Chairman of the Board(1)(3)

Sheldon S. Ohringer....................... 41 President, Chief Executive Officer and Director(2)

Robert E. Randall......................... 51 Executive Vice President, Chief Operating Officer, Acting
Chief Financial Officer and Director(3)

John Lewis................................ 60 Senior Vice President, Network and Operations

G. Bradford Saunders...................... 45 Senior Vice President, Project Development

Andrew B. Taubman......................... 31 Senior Vice President, Corporate Finance and Development

Eric Hyde................................. 41 Senior Vice President, Sales and Product Marketing

Scott M. Chase............................ 29 Senior Vice President, Corporate Communications and External
Affairs

Dennis Mulroy............................. 43 Vice President, Finance and Administration and Secretary

C. Kevin Garland.......................... 30 Director(3)(4)

Rodney Malcolm............................ 34 Director

James O. Spitzenberger.................... 54 Director(5)

John C. Stiska............................ 56 Director

Melanie Sturm............................. 36 Director(4)
</TABLE>

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

(1) Mr. Sturm resigned as President and Chief Executive Officer of the Company
at the close of business on September 30, 1998 in order to allow Mr.
Ohringer to assume such positions.

(2) Effective October 1, 1998, Mr. Ohringer became the Company's President and
Chief Executive Officer and also became a Director of the Company. See
"--Retention of New Chief Executive Officer and President."

(3) Member of Chairman's Committee

(4) Member of Compensation Committee

(5) Member of Audit Committee

DONALD L. STURM joined the Company as Chairman of the Board and President of
the Company in January 1998 and was named Chief Executive Officer in March 1998.
Since December 1991, Mr. Sturm has been a private equity investor, with
interests in the telecommunications, banking and healthcare industries, among
others. Mr. Sturm currently serves as chairman of the board of nine banks that
he owns in the Rocky Mountain area and the midwest. Mr. Sturm was a member of
the group that bought Continental Airlines ("Continental") out of bankruptcy in
1993, and currently is a significant stockholder and director of Continental.
Prior to December 1991, Mr. Sturm served as Vice Chairman of Peter Kiewit Sons'
Inc. ("PKS"), a construction, coal mining and telecommunications company that
has made significant investments in other industries. In 1984, Mr. Sturm led
PKS's $3.5 billion acquisition of The Continental Group Inc. (the "Group") and
became the Group's chairman and chief executive officer, positions he held until
PKS sold the Group in 1991. While Vice Chairman of PKS, Mr. Sturm participated
in decisions to invest in

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MFS Communications which was taken public in 1993 and sold to WorldCom in 1996
for approximately $14.4 billion. Mr. Sturm owns significant ownership interests
in WorldCom and Level 3 Communications, Inc.

SHELDON S. OHRINGER joined FirstWorld as its Chief Executive Officer and
President on October 1, 1998. Prior to this time, Mr. Ohringer served in various
capacities for ICG from November 1994 to September 1998, most recently as
Executive Vice President--Telecom of ICG and President of ICG Telecom Group,
Inc. Before working for ICG, Mr. Ohringer was Senior Vice President of Sales and
Business Development for US Long Distance from May 1991 until October 1994. From
May 1984 until August 1990, Mr. Ohringer held key management and executive
positions with Telecom* USA, a major long distance carrier which was acquired by
MCI in 1990.

ROBERT E. RANDALL has served as Executive Vice President and Chief Operating
Officer of the Company since April 1995 and acting Chief Financial Officer since
November 1996. Mr. Randall is responsible for directing all corporate and
business activities. Prior to joining the Company, Mr. Randall founded the
engineering firm of Randall Lamb Associates in 1974, which he subsequently built
into a large electrical and mechanical engineering firm, with offices in San
Diego and San Francisco. In 1993, he was appointed by the State of California
Board of Registration for Professional Engineers and Land Surveyors to the
Electrical Technical Advisory Committee. Mr. Randall also is an active member of
several other professional engineering associations.

JOHN LEWIS joined the Company in June of 1996 and has served as Senior Vice
President, Network and Operations of the Company since April 1997. Prior to
joining the Company, Mr. Lewis amassed significant experience in the
telecommunications industry, primarily in the areas of network design,
maintenance and administration. From July 1991 to September 1995, Mr. Lewis
served as Executive Director of the INFOTEL project at Pacific Bell, which
focused on designing Pacific Bell's future telephone operations model. Prior to
joining Pacific Bell, Mr. Lewis served as General Manager of Technical
Operations & Maintenance Support at AT&T Network Systems from 1984 to 1988, as
General Manager of Switching at Pacific Telephone from 1981 to 1983 and as
Division Manager of Performance at New York Telephone from 1975 to 1980.

G. BRADFORD SAUNDERS joined the Company in November of 1995 and has served
as Senior Vice President, Project Development of the Company since July 1996. He
has twenty years of experience in project development management, including the
turnkey development of eight major public/private projects with cities and
municipal agencies in San Diego County. Prior to joining the Company, Mr.
Saunders served as President of Starboard Financial Corporation, a San
Diego-based development company ("Starboard"), for 17 years. Mr. Saunders became
obligated on certain significant obligations of Starboard personally guaranteed
by him and in April 1996 filed a voluntary petition for relief under Chapter VII
of the Bankruptcy Code. This petition was discharged in August 1996. Mr.
Saunders also is a former president of the San Diego Chapter of Lambda Alpha
International and is a member of the Urban Land Institute.

ANDREW B. TAUBMAN joined the Company as Senior Vice President, Corporate
Development in February 1997 and was made Senior Vice President, Corporate
Finance and Development in March 1998. Prior to joining the Company, Mr. Taubman
held various positions at J.P. Morgan Securities, Inc. and affiliates ("J.P.
Morgan") from 1989 to January 1997. Most recently, he served as Vice President
in the Private Finance Group and prior to that time he worked in the Mergers and
Acquisitions and Real Estate groups at J.P. Morgan.

ERIC HYDE joined the Company as Senior Vice President, Sales & Product
Marketing in June 1998. Mr. Hyde has 15 years experience in product marketing,
strategic planning and sales. From March 1997 to June 1998, Mr. Hyde served as
Director of Customer Marketing in the Business Communications Systems Division
at Lucent Technologies where he was responsible for the implementation of
marketing programs for call center, telephony, video and messaging applications.
From January 1994 to March 1997, Mr. Hyde

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served in various capacities at Ameritech, including Senior Director of Product
Marketing and Integrated Solutions where he was responsible for launching
wireless transport, data and voice CPE products to key accounts. From January
1982 to December 1993, Mr. Hyde held various positions with General Motors
Corporation, including Director of Strategic Marketing of the North American
Export Sales Division.

SCOTT M. CHASE joined the Company in October 1998 as Senior Vice President,
Corporate Communications and External Affairs. Prior to joining the Company, Mr.
Chase worked in various capacities for ICG from March 1997 to September 1998,
most recently as Vice President, Corporate Communications and Government
Affairs. After graduating from the University of Colorado in 1990 and until he
joined ICG in March 1997, Mr. Chase was actively involved in a number of local,
state and federal electoral campaigns, including serving as the Deputy Political
Director for the Colorado campaign to elect Clinton/Gore in 1992. In addition
during this period, Mr. Chase also served as a senior policy and political
advisor for several public officials, including U.S. Senator Tim Wirth and Roy
Romer, Governor of Colorado.

DENNIS MULROY joined the Company as Vice President, Finance and
Administration in January 1997 and has served as Secretary since January 1998.
From November 1993 to December 1996, Mr. Mulroy held the position of Chief
Financial Officer and Vice President of Administration for River Medical Inc., a
medical device company. From April 1983 to October 1993, Mr. Mulroy served as
Vice President of Finance and Administration for Spectragraphics Corporation, an
international computer technology company. Mr. Mulroy is a Certified Public
Accountant and previously worked in that capacity for Ernst & Young.

C. KEVIN GARLAND joined the Company as a director in January 1998. Mr.
Garland has worked for Enron since 1995. He currently serves as Vice President
of Equity Investments for Enron and is responsible for overseeing minority and
control investments. From June 1993 to December 1994, Mr. Garland served as
senior associate in mergers and acquisitions for Parker & Parsley, an
independent oil and gas company. From 1992 to April 1993, Mr. Garland worked as
an analyst with Stephens Inc., an investment banking firm in Little Rock,
Arkansas.

RODNEY MALCOLM joined the Company as a director in January 1998. Mr. Malcolm
has worked for Enron in Houston, Texas since September 1994 and currently serves
as a Vice President with responsibilities for public power and finance.

JAMES O. SPITZENBERGER joined the Company as a director in January 1998.
Since July 1996, Mr. Spitzenberger has been a private equity investor. Prior to
July 1996, Mr. Spitzenberger was a Vice President of PKS, which he joined in
February 1981. While at PKS, Mr. Spitzenberger served as Director of Taxation.
Prior to joining PKS, Mr. Spitzenberger was a tax manager with Arthur Andersen &
Co.

JOHN C. STISKA joined the Company as a director in September 1997. Mr.
Stiska currently is President and Chief Executive Officer of D C Acquisition
Corp., a company formed to obtain financing for and provide management services
to a new digital cinema company. Mr. Stiska is a member of the board of
directors of Laser Power Corporation, a publicly traded company. From February
1996 to February 1998, he served as Corporate Senior Vice President and General
Manager of the Technology Applications Division of Qualcomm Incorporated, a
leading developer and manufacturer of telecommunications technology. Prior to
joining Qualcomm, he was Chairman and Chief Executive Officer of Triton Group
Ltd. from 1990 to 1996. Previously, Mr. Stiska practiced law for 20 years,
specializing in corporate law, mergers and acquisitions, and securities law and
in July 1998, Mr. Stiska accepted an of-counsel position with the law firm of
Latham & Watkins.

MELANIE STURM joined the Company as a director in January 1998. Ms. Sturm is
a private equity investor and currently serves on the board of directors of MD
Network, a private healthcare concern. From 1990 to 1996, Ms. Sturm served as an
Investment Officer at International Finance Corporation, the private sector
affiliate of the World Bank. From 1984 to 1988, Ms. Sturm worked in the Mergers
& Acquisitions departments of Drexel, Burnham Lambert and Morgan Stanley. Ms.
Sturm is Donald L. Sturm's daughter.

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Donald L. Sturm, James O. Spitzenberger and Melanie Sturm were appointed to
the Board of Directors as the three directors the Sturm Entities are entitled to
appoint pursuant to the Securityholders Agreement. Likewise, C. Kevin Garland
and Rodney Malcolm were appointed to the Board of Directors as the two directors
Enron is entitled to appoint pursuant to the Securityholders Agreement.

RETENTION OF NEW CHIEF EXECUTIVE OFFICER AND PRESIDENT

The Company entered into an Employment Agreement on September 28, 1998 with
Sheldon S. Ohringer, pursuant to which Mr. Ohringer agreed to join FirstWorld as
its President and Chief Executive Officer on October 1, 1998 (the "Commencement
Date"). The Employment Agreement has a three year term ending on the close of
business on September 30, 2001, unless terminated earlier by either party. The
Employment Agreement also provides that Mr. Ohringer will be nominated to serve
as a director of the Company during the term of the agreement. The Employment
Agreement provides for an initial annual base salary of $200,000 and an annual
cash bonus not to exceed 50% of Mr. Ohringer's base salary. In addition, to
compensate Mr. Ohringer for certain benefits that he would have received from
his previous employer, FirstWorld has agreed to pay Mr. Ohringer a cash payment
of $4,000,000 (the "Equalization Payment") in three separate installments. The
first installment of the Equalization Payment in the amount of $2,000,000 is due
and payable on the Commencement Date, the second installment of the Equalization
Payment in the amount of $1,000,000 is due and payable on October 1, 1999 and
the final installment of the Equalization Payment in the amount of $1,000,000 is
due and payable on October 1, 2000. Mr. Ohringer must be employed by the Company
on the date an installment becomes due to be eligible to receive the installment
payment unless the Company terminates Mr. Ohringer's employment other than for
cause or Mr. Ohringer terminates his own employment for good reason (as defined
in the Employment Agreement) prior to the installment date. In addition, Mr.
Ohringer may elect to receive all or any portion of the second and third
installment payments in the form of FirstWorld Series B Common Stock. If Mr.
Ohringer elects to receive any of the second or third installment payments in
Series B Common Stock, such stock will be valued at $5.00 and $7.50 per share,
respectively.

In addition, under the Employment Agreement, Mr. Ohringer also will be
eligible for the following performance based bonuses:

IPO BONUS. If the Company consummates a Qualified Initial Public Offering
(as defined below) with a price of at least $10.00 per share (subject to
adjustment upon a subdivision or combination or other adjustment in the number
of outstanding shares of the Company made without the receipt of consideration
to the Company after the Commencement Date) within the first 18 months after the
Commencement Date, the Company will pay Mr. Ohringer a $1,000,000 cash bonus
(the "IPO Bonus"). For purposes of the Employment Agreement, the term "Qualified
Initial Public Offering" shall mean the Company's first underwritten initial
public offering of common equity securities under the Securities Act, after the
date of the Employment Agreement, with gross proceeds to the Company of at least
$20,000,000, that results in such common equity securities being listed for
trading on a national securities exchange or being authorized for trading on the
Nasdaq National Market at such time.

DEFERRED CASH BONUS. In addition to the IPO Bonus, Mr. Ohringer also would
be entitled to receive the following additional compensation:

(i) If the Company consummates a Qualified Initial Public Offering
with a price of at least $10.00 per share (subject to adjustment upon a
subdivision or combination or other adjustment in the number of
outstanding shares of the Company made without the receipt of
consideration to the Company after the Commencement Date) within the
first 12 months after the Commencement Date, the Company will pay Mr.
Ohringer a $4,207,500 cash bonus on September 30, 2001;

(ii) If the Company consummates a Qualified Initial Public Offering
with a price of at least $12.50 per share (subject to adjustment upon a
subdivision or combination or other adjustment in the number of
outstanding shares of the Company made without the receipt of
consideration to

66
<PAGE>

the Company after the Commencement Date) within the first 24 months after
the Commencement Date, the Company will pay Mr. Ohringer a $8,415,000
cash bonus on September 30, 2001; provided that if Mr. Ohringer earns the
payment described in this paragraph (ii) he will not be entitled to
receive the payment described in paragraph (i) above; and

(iii) If the Company has a market capitalization of at least $1.2
billion (as adjusted as described below) for a period of 20 consecutive
trading days during a three-year period beginning on the Commencement
Date, the Company will pay Mr. Ohringer a cash payment equal to
$16,830,000 minus any amounts he receives pursuant to paragraph (i) or
(ii) above on September 30, 2001. Market capitalization of $1.2 billion
assumes 60,000,000 fully diluted shares of Series B Common Stock and a
market price of $20.00 per share, subject to adjustment. If the number of
fully diluted shares of Series B Common Stock is greater than or less
than 60,000,000 shares of Series B Common Stock, the target market
capitalization will be proportionately adjusted; provided that the $20.00
per share market price would not be so adjusted, except to the extent
required to appropriately reflect any subdivision (by any stock split,
stock dividend, recapitalization or otherwise), combination (by reverse
stock split or otherwise) or other adjustment in the number of
outstanding shares of the Company made without the receipt of
consideration to the Company after the Commencement Date.

The foregoing payments described in paragraph (i), (ii) and (iii) above are
referred to herein individually or collectively, as the "Deferred Cash Bonus."
Notwithstanding the foregoing, upon a change of control (as defined in the
Employment Agreement) or the termination of Mr. Ohringer's employment upon his
death, by the Company without cause or voluntarily by Mr. Ohringer for good
reason, any Deferred Cash Bonus previously earned by Mr. Ohringer that has not
yet been paid shall be paid within 30 days of the date of termination (as
defined in the Employment Agreement). In no event will the termination of Mr.
Ohringer's employment (including, without limitation, termination by the Company
for cause or disability (as defined in the Employment Agreement) or Mr.
Ohringer's voluntary termination of his employment without good reason) affect
Mr. Ohringer's right to receive the Deferred Cash Bonus earned prior to such
termination.

Mr. Ohringer also has been granted an option to purchase 2,805,000 shares of
Series B Common Stock (representing an approximate 5% equity interest in the
Company on a fully diluted basis) at an exercise price of $6.00 per share
(subject to anti-dilution protections set forth in the Employment Agreement).
The option vests (i) with respect to one-third of the shares covered by the
option on the Commencement Date, (ii) with respect to one-third of the shares
covered by the option on the first anniversary of the Commencement Date and
(iii) with respect to the remaining one-third of the shares covered by the
option on the second anniversary of the Commencement Date. Notwithstanding the
foregoing, all of the shares subject to the option shall immediately vest (i)
immediately prior to a change of control, (ii) if the Company has a market
capitalization of at least $1.2 billion for a period of 20 consecutive trading
days during a three-year period starting on the Commencement Date or (iii) if
Mr. Ohringer is terminated by the Company without cause or Mr. Ohringer
voluntarily terminates his employment with the Company for good reason. Subject
to certain exceptions, Mr. Ohringer has agreed to hold 40% of the shares he
acquires upon exercise of the option for at least one year from the date of
exercise.

Mr. Ohringer also has been granted a right of first refusal which allows him
to maintain his percentage ownership interest (assuming the exercise in full of
the option described above) in the Company with respect to certain future equity
issuances. This right of first refusal terminates on the earlier to occur of (i)
January 31, 2004, (ii) the day immediately prior to the closing of a Qualified
Initial Public Offering or (iii) the date of termination. Mr. Ohringer may also
participate in the employee benefit plans generally available to FirstWorld's
senior executives according to the plans' terms and conditions.

67
<PAGE>

Depending on how Mr. Ohringer's employment with FirstWorld terminates, Mr.
Ohringer (or his estate) may be eligible to receive certain termination payments
and Mr. Ohringer (or his family and dependents) would also be entitled to
continuation of certain benefits for a specified period of time.

Mr. Ohringer is subject to a one year covenant not to compete if his
employment is terminated by the Company for cause or for disability or if Mr.
Ohringer voluntarily terminates his employment without good reason.

COMMITTEES OF THE BOARD OF DIRECTORS

CHAIRMAN'S COMMITTEE. The Board of Directors has established the Chairman's
Committee consisting of Messrs. Randall, Sturm and Garland. The Chairman's
Committee is empowered to conduct all activities that may be conducted by the
Board of Directors, subject only to limitations imposed by applicable
corporation law.

COMPENSATION COMMITTEE. The Board of Directors has established a
Compensation Committee consisting of Mr. Garland and Ms. Sturm. The Compensation
Committee determines compensation for the Company's senior executive officers
and administers the 1995 Stock Option Plan (as defined) and the 1997 Stock
Option Plan (as defined).

AUDIT COMMITTEE. The Board of Directors has established an Audit Committee
with Mr. Spitzenberger as its sole member. The Audit Committee makes
recommendations concerning the engagement of independent public accountants,
reviews with the independent public accountants the plans and results of the
audit engagement, approves professional services provided by the independent
public accountants, reviews the independence of the independent public
accountants, considers the range of audit and non-audit fees and reviews the
adequacy of the Company's internal accounting controls.

DIRECTOR COMPENSATION

Directors of the Company who are also employees of the Company receive no
directors' fees. One of the Company's non-employee directors, John C. Stiska,
receives a retainer of $1,000 per month. All non-employee directors are
reimbursed for their reasonable out-of-pocket travel expenditures. Directors of
the Company are also eligible to receive grants of stock options under the
Company's 1997 Stock Option Plan. Corporate Managers, LLC, a Colorado limited
liability company and an affiliate of the Sturm Entities (all of which are
controlled by Donald L. Sturm and in which James O. Spitzenberger and Melanie
Sturm own membership interests), receives an annual management fee of $620,000
plus out of pocket expenses. C. Kevin Garland and Rodney Malcolm are officers of
Enron, which receives an annual management fee of $500,000 plus out of pocket
expenses. Corporate Managers, LLC and Enron receive such management fees
pursuant to three-year Management Services Agreements. See "Certain
Transactions."

68
<PAGE>
EXECUTIVE COMPENSATION

The following table sets forth certain information concerning the cash and
non-cash compensation during the periods indicated earned by or awarded to the
Chief Executive Officer and to the five other most highly compensated executive
officers of the Company whose combined salary and bonus exceeded $100,000 during
the fiscal year ended September 30, 1997 (the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION AWARDS
---------------------------------------------
ANNUAL COMPENSATION SECURITIES
--------------------------------------- RESTRICTED UNDERLYING ALL OTHER
SALARY BONUS OTHER ANNUAL STOCK AWARDS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION ($) ($) COMPENSATION ($) (#) ($)
- ------------------------------------- --------- --------- ----------------- ------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Renney Senn(1) ...................... 223,022 -- -- -- -- --
Former Chief Executive Officer

Robert E. Randall ................... 199,063 41,085 -- -- -- --
Executive Vice President, Chief
Operating Officer and Acting Chief
Financial Officer

Robert Cerasoli(2) .................. 184,688 40,463 -- -- -- --
Former Senior Vice President,
Communications and Public Policy

G. Bradford Saunders ................ 148,750 -- -- -- 75,000 --
Senior Vice President, Project
Development

John Lewis .......................... 130,000 -- -- -- 14,000 --
Senior Vice President, Network and
Operations

William Johnson(3) .................. 184,688 100,000 -- -- -- --
Former Senior Vice President
</TABLE>

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

(1) Mr. Senn resigned in January 1998 and in connection with such resignation
received approximately $12,000 less applicable federal and state taxes for
accrued vacation days.

(2) Mr. Cerasoli resigned in September 1998.

(3) Mr. Johnson resigned in September 1997.

69
<PAGE>
OPTION GRANTS DURING FISCAL 1997

The following table sets forth information with respect to grants of stock
options to each of the Named Executive Officers during the fiscal year ended
September 30, 1997.

<TABLE>
<CAPTION>
POTENTIAL REALIZED
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES % OF TOTAL STOCK PRICE
UNDERLYING OPTIONS GRANTED APPRECIATION FOR
OPTIONS TO EMPLOYEES IN EXERCISE OR OPTION TERM(1)
GRANTED FISCAL YEAR BASE PRICE --------------------
NAME (#) (%) ($/SH) EXPIRATION DATE 5% 10%
- ------------------------------------- ----------- --------------- ------------- --------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Renney Senn.......................... -- -- -- -- -- --
Robert E. Randall.................... -- -- -- -- -- --
Robert Cerasoli...................... -- -- -- -- -- --
G. Bradford Saunders................. 75,000(2) 15.32% $ .50 Nov. 25, 2006 $ 0 $ 11,133
John Lewis........................... 14,000(3) 2.86% $ 3.20(4) May 29, 2007 $ 0 $ 0
William Johnson...................... -- -- -- -- -- --
</TABLE>

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

(1) The 5% and 10% assumed annual rate of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission. There can
be no assurance that the actual stock price appreciation over the ten year
option term will be at the assumed 5% or 10% levels or at any other defined
level.

(2) Issued pursuant to the 1995 Stock Option Plan.

(3) Issued pursuant to the 1997 Stock Option Plan.

(4) Mr. Lewis's 14,000 options were issued at an exercise price of $3.20 per
share. As of September 30, 1997, the exercise price remained $3.20; however,
in December 1997, the Board of Directors adopted an amendment to the 1995
and 1997 Stock Option Plans that reduced the exercise price of all options
originally issued at an exercise price over $3.00 to $3.00. Thus, Mr.
Lewis's options now have an exercise price of $3.00. See "--Stock Option
Plans."

OPTION EXERCISES AND FISCAL YEAR-END VALUES

The following table sets forth the information with respect to the Named
Executive Officers concerning the exercise of options during fiscal year 1997
and unexercised options held as of September 30, 1997.

OPTIONS EXERCISED DURING FISCAL 1997

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES ACQUIRED ON VALUE UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
EXERCISE REALIZED OPTIONS AT FY-END (#) AT FY-END ($)(1)
NAME (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------------------ ------------------- ----------- ----------------------- -----------------------
<S> <C> <C> <C> <C>
Renney Senn......................... -- -- 0/0 --
Robert E. Randall................... -- -- 0/0 --
Robert Cerasoli..................... -- -- 0/0 --
G. Bradford Saunders................ -- -- 50,000(2)/75,000(3) 60,000/90,000
John Lewis.......................... -- -- 10,000(4)/40,000(5) 9,720/38,880
William Johnson(6).................. -- -- 240,000/60,000 348,000/87,000
</TABLE>

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

(1) Calculated by determining the difference between the fair market value of
the securities underlying the options at September 30, 1997 ($1.60 per share
as determined by the Board of Directors) and the exercise price of the
options.

70
<PAGE>
(2) Includes 20,000 options with an exercise price of $.25 and 30,000 options
with an exercise price of $.50.

(3) Includes 30,000 options with an exercise price of $.25 and 45,000 options
with an exercise price of $.50.

(4) Includes 7,200 options with an exercise price of $.25 and 2,800 options with
an exercise price of $3.20 (Pursuant to an amendment to the Company's stock
option plans adopted by the Board of Directors, the exercise price of Mr.
Lewis's 2,800 options was reduced to $3.00 in December 1997). See "--Stock
Option Plans."

(5) Includes 28,800 options with an exercise price of $.25 and 11,200 options
with an exercise price of $3.20 (Pursuant to an amendment to the Company's
stock option plans adopted by the Board of Directors, the exercise price of
Mr. Lewis's 11,200 options was reduced to $3.00 in December 1997). See
"--Stock Option Plans."

(6) Includes 300,000 options with an exercise price of $.15. Mr. Johnson
resigned from the Company in September 1997 and from the Company's Board of
Directors in December 1997. In connection with such resignation, Mr. Johnson
exercised the vested portion of his options (240,000) and the remaining
options (60,000) were terminated pursuant to the provisions of the 1995
Stock Option Plan.

STOCK OPTION PLANS

The Company has two stock option plans currently in place: the 1995 Stock
Option Plan and the 1997 Stock Option Plan.

1995 STOCK OPTION PLAN

The Company adopted the SpectraNet International 1995 Incentive Stock Option
Plan (the "1995 Stock Option Plan") in 1995 to incentivize certain employees of
the Company by enabling them to acquire or increase their proprietary interest
in the Company and to encourage continued service with the Company. The 1995
Stock Option Plan will terminate on April 10, 2005, unless sooner terminated by
the Board of Directors. The Company is authorized to issue incentive stock
options ("ISOs") as defined in the Internal Revenue Code of 1986, as amended, to
acquire up to an aggregate of 1,500,000 shares of Series B Common Stock pursuant
to the 1995 Stock Option Plan.

Subject to the limitations set forth in the 1995 Stock Option Plan, the
Board of Directors or a committee thereof comprised of at least three directors
has the authority, subject to certain limitations, to select the employees of
the Company or its subsidiaries to whom grants are made, to designate the number
of shares to be covered by each option, to establish vesting schedules, and to
specify other terms of the options. Generally, options vest over a four and one
half year period and expire ten years from the date of grant. Options granted
under the 1995 Stock Option Plan are nontransferable and expire 90 days after
the termination of an optionee's employment with the Company, unless such
optionee's service with the Company is terminated by death or disability, in
which case such options expire six months and one year, respectively, after the
optionee's employment with the Company is terminated. In addition pursuant to an
amendment to the 1995 Stock Option Plan adopted by the Board of Directors in
December 1997, if an employee is terminated without "cause" prior to June 30,
1998, then all options held by such optionee become immediately vested and
exercisable.

The exercise price of options granted under the 1995 Stock Option Plan is
determined by the Board of Directors (or a committee thereof) at the time of
grant. The exercise price of options must be no less than the fair market value
of the Series B Common Stock on the date of grant. The exercise price of options
granted to an employee who owns more than 10% of the total combined voting power
of all classes of stock must be at least 110% of the fair market value of the
Series B Common Stock on the date of grant, and the term of these options cannot
exceed five years. As of May 31, 1998, options to purchase an aggregate of
702,400 shares of Series B Common Stock at prices ranging from $.15 to $.50 were
outstanding under the 1995 Stock Option Plan.

71
<PAGE>
1997 STOCK OPTION PLAN

The Company adopted the SpectraNet International 1997 Stock Plan (the "1997
Stock Option Plan") in 1997 to attract and retain personnel for positions of
substantial responsibility and to provide additional incentives to existing
employees, consultants and directors. The 1997 Stock Option Plan provides for
the grant of both stock options intended to qualify as ISOs and nonqualified
stock options ("NQSOs"). The 1997 Stock Option Plan terminates on April 22,
2007, unless sooner terminated by the Board of Directors. Pursuant to an
amendment duly adopted by the Board and approved at the 1998 Annual Meeting of
Stockholders, the 1997 Stock Option Plan provides for aggregate option grants of
up to 1,500,000 shares of Series B Common Stock.

Subject to the terms and conditions of the 1997 Stock Option Plan and
applicable law, the Board of Directors or a duly appointed committee thereof
(the "Administrator") has the authority to determine which employees, directors
or consultants should be awarded options, the type of options to be awarded, the
number of shares covered by option awards, the exercise price applicable to
options awarded, the vesting schedule of such options, other terms of the
options and any other matters delegated to it under the 1997 Stock Option Plan
or necessary for the proper administration of the 1997 Stock Option Plan.
Options awarded pursuant to the 1997 Stock Option Plan shall vest and become
exercisable as determined by the Administrator.

Options awarded under the 1997 Stock Option Plan are nontransferable and
generally expire ten years from the date of grant (or, in the case of ISOs
granted to an optionee who owns more than 10% of the total combined voting power
of all classes of stock, five years). Unless otherwise indicated in the Stock
Option Agreement, the vested portion of options awarded pursuant to the 1997
Stock Option Plan generally remain exercisable for three months after the
termination of the optionee's service to the Company. However, if the optionee's
service to the Company ends because of death or disability, unless otherwise
indicated in the Stock Option Agreement, such optionee has 12 months to exercise
the vested portion of his or her options. In addition, pursuant to an amendment
to the 1997 Stock Option Plan duly adopted by the Board of Directors in December
1997, if an employee is terminated without "cause" prior to June 30, 1998, then
all options held by such optionee become immediately vested and exercisable.

The exercise price of options granted under the 1997 Stock Option Plan is
determined by the Administrator at the time of grant, subject to the following
limitations. In the case of ISOs, the exercise price may not be less than 100%
of the fair market value of the Series B Common Stock on the date of grant, and
the exercise price of ISOs granted to an optionee who owns more than 10% of the
total combined voting power of all classes of stock may not be less than 110% of
the fair market value of the Series B Common Stock on the date of grant. In the
case of NQSOs, the exercise price may not be less than 85% of the fair market
value of the Series B Common Stock on the date of grant, and the exercise price
of NQSOs granted to an optionee who owns more than 10% of the total combined
voting power of all classes of stock may not be less than 110% of the fair
market value of the Series B Common Stock on the date of grant.

The Board of Directors, acting as Administrator under the 1997 Stock Option
Plan, previously issued options under the plan with exercise prices of $3.00 and
$3.20. In December 1997, the Board of Directors lowered to $3.00 the exercise
prices of options originally issued with an exercise price of $3.20. The
exercise price was reduced in connection with the conclusion of a private
financing, to reflect the Company's determination that the exercise price of
such options was substantially higher than fair market value at that time. In
December 1997 the Company sold shares of Series A Common Stock with 100% warrant
coverage for $3.00, the Company determined that the fair market value of the
Series B Common Stock (which does not possess the super-voting rights of the
Series A Common Stock and which would not be issued with warrant coverage) could
be no greater than $3.00. Accordingly, to continue to incentivize and maintain
good relations with its employees, the Board of Directors determined that
exercise prices should be adjusted to reflect the maximum fair market value of
the Series B Common Stock implied by the

72
<PAGE>
Series A Common Stock financing. As of May 31, 1998, options to purchase an
aggregate of 742,360 shares of Series B Common Stock at an exercise price of
$3.00 were outstanding under the 1997 Stock Option Plan.

LIMITED LIABILITY AND INDEMNIFICATION

The Company's Certificate of Incorporation (as amended or restated from time
to time, the "Certificate of Incorporation") and bylaws ("Bylaws") provide that
the Company shall, to the fullest extent permitted by Section 145 of the General
Corporation Law of the State of Delaware ("DGCL"), as the same may be amended
and supplemented from time to time, indemnify all directors and officers and all
other persons whom it has authority to indemnify under Section 145 of the DGCL.

FirstWorld has entered into indemnification agreements with its officers and
directors containing provisions which may require FirstWorld, among other
things, to indemnify the officers and directors against certain liabilities that
may arise by reason of their status or service as directors or officers (other
than liabilities arising from willful misconduct of a culpable nature), and to
advance their expenses incurred as a result of any proceeding against them as to
which they could be indemnified. The Company believes that these provisions and
agreements will assist the Company in attracting and retaining qualified persons
to serve as directors and officers.

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

The Company maintains insurance on behalf of its directors and officers,
insuring them against liabilities that they may incur in such capacities or
arising out of such status.

73
<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's voting securities as of October 1, 1998, by (i) each
of the Company's named executive officers and directors; (ii) the Company's
executive officers and directors as a group; and (iii) stockholders known by the
Company to beneficially own more than 5% of any class of the Company's voting
securities. For purposes of this Prospectus, beneficial ownership of securities
is defined in accordance with the rules of the Securities and Exchange
Commission and means generally the power to vote or exercise investment
discretion with respect to securities, regardless of any economic interests
therein. Except as otherwise indicated, the Company believes that the beneficial
owners of the securities listed below have sole investment and voting power with
respect to such shares, subject to community property laws where applicable.
Unless otherwise indicated, the business address for each of the individuals or
entities listed below is c/o FirstWorld Communications, Inc., 9333 Genesee
Avenue, Suite 200, San Diego, California 92121.

<TABLE>
<CAPTION>
NUMBER OF SERIES NUMBER OF SERIES
A COMMON SHARES B COMMON SHARES
BENEFICIALLY BENEFICIALLY
NAME OWNED(1)(2) OWNED(1)(2) PERCENT OF CLASS(1)
- ------------------------------------------------------------ ---------------- ---------------- ------------------------------
<S> <C> <C> <C>
Donald L. Sturm(3).......................................... 5,000,000 15,452,839 55.57% of Common Stock
51.13% of Voting Stock

Enron Capital & Trade Resources Corp.(4).................... 5,000,000 11,666,666 48.43% of Common Stock
49.09% of Voting Stock

Kevin Garland(5)............................................ 0 0 *% of Common Stock
*% of Voting Stock

Rodney Malcolm(6)........................................... 0 0 *% of Common Stock
*% of Voting Stock

Robert E. Randall(7)........................................ 0 489,748 1.87% of Common Stock
*% of Voting Stock

James O. Spitzenberger(8)................................... 0 0 *% of Common Stock
*% of Voting Stock

John C. Stiska(9)........................................... 0 30,000 *% of Common Stock
*% of Voting Stock

Melanie Sturm(10)........................................... 0 0 *% of Common Stock
*% of Voting Stock

Robert Cerasoli(11)......................................... 0 346,417 1.33% of Common Stock
*% of Voting Stock

John Lewis(12).............................................. 0 56,969 *% of Common Stock
*% of Voting Stock

G. Bradford Saunders(13).................................... 0 136,417 *% of Common Stock
*% of Voting Stock

Renney Senn(14)............................................. 0 882,273 3.38% of Common Stock
*% of Voting Stock

William Johnson............................................. 0 240,000 *% of Common Stock
*% of Voting Stock

Sheldon S. Ohringer(15)..................................... 0 935,000 3.45% of Common Stock
*% of Voting Stock

All directors and executive officers as a group (14
persons)(16).............................................. 5,000,000 17,100,973 58.06% of Common Stock
51.90% of Voting Stock
</TABLE>

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

* Less than one percent beneficially owned

74
<PAGE>

(1) In accordance with Rule 13d-3 under the Securities and Exchange Act of
1934, as amended (the "Exchange Act"), a person is deemed to be a
"beneficial owner" of a security if he or she has or shares the power to
vote or direct the voting of such security or the power to dispose or
direct the disposition of such security. A person is also deemed to be a
beneficial owner of any securities of which that person has the right to
acquire beneficial ownership within 60 days. More than one person may be
deemed to be a beneficial owner of the same securities. The percentage
ownership of each stockholder is calculated based on the total number of
outstanding shares of Series A Common Stock and Series B Common Stock as of
October 1, 1998 and those shares of Series A Common Stock or Series B
Common Stock that may be acquired by such stockholder within 60 days of
such date. Consequently, the denominator for calculating such percentage
may be different for each stockholder.

(2) This table is based upon information supplied by directors, executive
officers and principal stockholders. Unless otherwise indicated in the
footnotes to this table, each of the stockholders named in this table has
sole voting and investment power with respect to the shares shown as
beneficially owned.

(3) Shares listed include: (a) 5,000,000 shares of Series A Common Stock held
of record by Spectra 3; (b) 1,392,747 shares of Series B Common Stock held
of record by Spectra 1; (c) 3,333,333 shares of Series B Common Stock held
of record by Spectra 3; and (d) 10,726,759 shares of Series B Common Stock
subject to currently exercisable warrants held of record by Spectra 1,
Spectra 2 and Spectra 3. Beneficial ownership of the foregoing shares is
attributable to Mr. Sturm because he is the managing member of Spectra 1,
Spectra 2 and Spectra 3 and is therefore deemed to exercise voting power
and investment authority with respect to the shares.

(4) Shares listed include: (a) 5,000,000 shares of Series A Common Stock held
of record by Enron; (b) 3,333,333 shares of Series B Common Stock held of
record by Enron; and (c) 8,333,333 shares of Series B Common Stock subject
to currently exercisable warrants held of record by Enron.

(5) Excludes the securities owned by Enron described in Footnote (4) above. Mr.
Garland is an officer of Enron, but disclaims beneficial ownership of the
shares owned by Enron.

(6) Excludes the securities owned by Enron described in Footnote (4) above. Mr.
Malcolm is an officer of Enron, but disclaims beneficial ownership of the
shares owned by Enron.

(7) Shares listed include: (a) 149,999 shares of Series B Common Stock held of
record by Randall Lamb Associates Profit Sharing Plan and 33,332 shares of
Series B Common Stock subject to currently exercisable warrants held by
Randall Lamb Associates Profit Sharing Plan; beneficial ownership of such
shares is attributable to Mr. Randall because he has the power to direct
the voting and investment of such shares; (b) 5,000 shares of Series B
Common Stock held of record by Robert E. and Dianne Randall as custodians
for Natalie Marie Ray under the California Uniform Transfers to Minors Act
("CUTMA") and 5,000 shares of Series B Common Stock held of record by
Robert E. and Dianne M. Randall as custodians for Alexandra Dianne Ray
under CUTMA; beneficial ownership of such shares is attributable to Mr.
Randall because he is a custodian of the minor children and is therefore
deemed to exercise voting power and investment authority with respect to
the shares; (c) 280,000 shares of Series B Common Stock held of record by
Robert E. and Dianne M. Randall as trustees of the Robert E. and Dianne M.
Randall Family Trust, dated 2/3/97; beneficial ownership of such shares is
attributable to Mr. Randall because he is a trustee of the Robert E. and
Dianne M. Randall Family Trust and is therefore deemed to exercise voting
power and investment authority with respect to the shares; and (d) 16,417
shares of Series B Common Stock subject to currently exercisable options
held by Mr. Randall at an exercise price of $3.00.

(8) Excludes shares of Series A Common Stock and Series B Common Stock
beneficially owned by the Sturm Entities. Mr. Spitzenberger owns 10.0%,
10.0% and 6.67% of the membership interests in Spectra 1, Spectra 2 and
Spectra 3, respectively. Mr. Spitzenberger disclaims beneficial ownership
of such shares.

(9) Shares listed include 15,000 shares of Series B Common Stock subject to
currently exercisable options held by Mr. Stiska at an exercise price of
$3.00, 5,000 shares of Series B Common Stock subject to options held by Mr.
Stiska at an exercise price of $3.00 exercisable within 60 days of October
1, 1998 and 10,000 shares of Series B Common Stock held jointly by Mr.
Stiska and his wife.

(10) Excludes shares of Series A Common Stock and Series B Common Stock
beneficially owned by the Sturm Entities. Ms. Sturm owns 17.0%, 17.0% and
20.0% of the membership interests in Spectra 1, Spectra 2 and Spectra 3,
respectively, through a revocable trust of which she is a co-trustee. Ms.
Sturm disclaims beneficial ownership of such shares.

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(11) Shares listed include (a) 11,000 shares of Series B Common Stock held of
record by Smith Barney, as IRA Custodian for Robert Cerasoli; beneficial
ownership of such shares is attributable to Mr. Cerasoli because he has
the power to direct the voting and investment of such shares; (b) 16,667
shares of Series B Common Stock held of record jointly by Mr. Cerasoli and
his wife; (c) 8,333 shares of Series B Common Stock subject to currently
exercisable warrants held by Mr. Cerasoli at an exercise price of $1.50;
and (d) 16,417 shares of Series B Common Stock subject to currently
exercisable options held by Mr. Cerasoli at an exercise price of $3.00.

(12) Shares listed include (a) 10,000 shares of Series B Common Stock held of
record by John W. and Dorothy M. Lewis Family Trust; beneficial ownership
of such shares is attributable to Mr. Lewis because he is a trustee of the
John W. and Dorothy M. Lewis Family Trust and is therefore deemed to
exercise voting power and investment authority with respect to the shares;
(b) 567 shares of Series B Common Stock subject to currently exercisable
warrants held by Mr. Lewis at an exercise price of $3.53; (c) 22,017
shares of Series B Common Stock subject to currently exercisable options
held by Mr. Lewis at an exercise price of $3.00 and (d) 21,600 shares of
Series B Common Stock subject to currently exercisable options held by Mr.
Lewis at an exercise price of $.25.

(13) Shares listed include 20,000 shares of Series B Common Stock held of
record by United Brice Group Ltd., a California corporation. Mr. Saunders
is an officer of such corporation and has voting power and investment
authority with respect to the shares. Accordingly, he may be deemed to
beneficially own the shares held by such corporation. Shares listed also
include 16,417 shares of Series B Common Stock subject to currently
exercisable options held by Mr. Saunders at an exercise price of $3.00;
45,000 shares of Series B Common Stock subject to currently exercisable
options held by Mr. Saunders at an exercise price of $.50; 30,000 shares
of Series B Common Stock subject to currently exercisable options held by
Mr. Saunders at an exercise price of $.25; and 10,000 shares of Series B
Common Stock subject to options held by Mr. Saunders at an exercise price
of $.25 exercisable within 60 days of October 1, 1998.

(14) Shares listed include 865,856 shares of Series B Common Stock held of
record jointly by Mr. Senn and his wife.

(15) Shares listed include 935,000 shares of Series B Common Stock subject to
currently exercisable options held by Mr. Ohringer at an exercise price of
$6.00.

(16) Excludes shares held by Enron Capital & Trade Resources Corp., Robert
Cerasoli, Renney Senn and William Johnson. See notes 3, 5-10, 12, 13 and
15.

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CERTAIN TRANSACTIONS

EQUITY INVESTMENT

GENERAL. On December 30, 1997, the Company completed a private placement of
equity securities to Spectra 3 and Enron (the "Equity Investment"). The Company
issued 5,000,000 shares of newly created Series A Common Stock to each of
Spectra 3 and Enron at an issue price of $3.00 per share pursuant to a Common
Stock Purchase Agreement dated as of December 30, 1997 (the "Stock Purchase
Agreement") by and among the Company, Enron, Spectra 3 and the holders of
$405,500 in principal amount of the Company's convertible subordinated
promissory notes. In addition, the Company issued an aggregate of 135,164 shares
of Series A Common Stock to the holders of the convertible subordinated
promissory notes upon the automatic conversion of the convertible subordinated
promissory notes pursuant to the terms thereof at a conversion price of $3.00
per share. The Company also issued for no additional consideration warrants to
purchase 5,000,000 shares of Series B Common Stock at $3.00 per share to each of
Spectra 3 and Enron and warrants to purchase an aggregate of 135,164 shares of
Series B Common Stock to the holders of the convertible subordinated promissory
notes (collectively, the "Recent Equity Warrants"). Spectra 3, an entity
controlled by Donald L. Sturm, was formed for the purpose of participating in
the Equity Investment. Spectra 3 is an affiliate of Colorado Spectra 1, LLC
("Spectra 1") and Colorado Spectra 2, LLC ("Spectra 2"), entities that owned
equity securities of the Company prior to the Equity Investment. See "Principal
Stockholders." Spectra 1, Spectra 2 and Spectra 3 are referred to herein as the
"Sturm Entities" and Spectra 3, Enron and the holders of the convertible
subordinated promissory notes are referred to herein as the "Purchasers."

The Stock Purchase Agreement also granted Spectra 3 and Enron, for a period
of 45 days following the closing of the Equity Investment, the right to invest
an additional $20,000,000 in the aggregate on the same terms and conditions
applicable to their purchases of Series A Common Stock, except that any
additional shares of Common Stock to be acquired would be Series B Common Stock.
This option was later extended by action of a special committee of the Company's
Board of Directors. Spectra 3 and Enron fully exercised their option to make an
additional $20,000,000 investment concurrently with the closing of the Private
Note Offering.

Substantially concurrently with the Equity Investment, the Company (i)
converted the three existing classes of preferred stock into Series B Common
Stock in accordance with the automatic conversion provision of its existing
charter in order to simplify the Company's capital structure and eliminate the
rights, preferences and privileges of the preferred stock; (ii) amended its
Articles of Incorporation to substantially increase the Company's authorized
capital to allow for the Equity Investment and to provide flexibility for future
financings; and (iii) amended its Articles of Incorporation to designate two
series of Common Stock, with the investors in the Equity Investment to receive
Series A Common Stock and all existing Common Stock (including Common Stock
issued upon conversion of the existing preferred stock) designated as Series B
Common Stock. The Series A Common Stock and Series B Common Stock are identical
in all material respects, except that the Series A Common Stock possess ten
votes per share on all matters subject to a vote of stockholders while the
Series B Common Stock possess one vote per share.

The Recent Equity Warrants are exercisable by the holder thereof in whole or
in part at an exercise price of $3.00 per share at any time following issuance
through the first to occur of (i) the seventh anniversary of the date of
issuance, (ii) the merger of the Company following which the Company's
stockholders own less than 50% of the surviving entity, and (iii) the sale of
all or substantially all of the Company's assets. The exercise price and number
of shares subject to the Recent Equity Warrants are subject to customary
anti-dilution adjustments in the event of a stock split, subdivision,
combination of shares, reorganization or reclassification or in the event that
dividends are paid on the Company's common stock in other securities or assets.

INVESTOR RIGHTS AGREEMENT. In connection with the closing of the Equity
Investment, the Company entered into an Amended and Restated Investor Rights
Agreement which entitles the Purchasers and

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certain other prior investors to certain demand and piggyback registration
rights. In addition, the Sturm Entities and Enron were granted rights of first
refusal that permit them to maintain their respective percentage ownership
interest in the Company with respect to future equity issuances. Mr. Ohringer
(pursuant to the terms of his Employment Agreement), the Sturm Entities and
Enron are the only entities having a right of first refusal or other preemptive
right on future equity financing transactions. See "Management--Retention of New
Chief Executive Officer and President."

In connection with the Additional Equity Investment, the Company further
amended and restated the Amended and Restated Investor Rights Agreement in order
to (i) allow for, and coordinate with, the registration rights granted to the
Initial Purchasers pursuant to that certain Warrant Registration Rights
Agreement dated as of April 13, 1998 by and between the Company and the Initial
Purchasers and (ii) to make certain other revisions to the previous iteration of
the Amended and Restated Investor Rights Agreement.

AMENDMENT TO STURM WARRANT. In connection with the Company's Series C
preferred stock financing, the Company and Spectra 1 and Spectra 2 entered into
a Warrant Purchase/Right to Maintain Agreement pursuant to which the Company
issued and sold to Spectra 2 a warrant (the "Sturm Warrant") that was initially
exercisable for 800,000 shares of Common Stock at an aggregate exercise price of
$3,800,000. The Sturm Warrant contained a complex anti-dilution provision
pursuant to which the number of shares purchasable could be increased
significantly based upon the weighted average issuance price of equity
securities issued by the Company prior to the earliest of (i) April 1, 1999,
(ii) the death of Donald L. Sturm and (iii) a public offering of securities by
the Company (the "Adjustment Date"). Based upon those existing provisions, upon
the closing of the Equity Investment, the Sturm Warrant would have been
exercisable for approximately 2,250,000 shares of Common Stock at an aggregate
exercise price of $3,800,000, and assuming exercise of the right of Spectra 3
and Enron to increase their investment by $20 million as described above would
have been exercisable for approximately 2,800,000 shares of Common Stock at an
aggregate exercise price of $3,800,000. The Sturm Warrant would also have
continued to adjust upon future equity issuances through the Adjustment Date.

In connection with the Equity Investment, in order to eliminate the
uncertainty regarding the number of shares purchasable under the Sturm Warrant,
the Company and Spectra 1 and Spectra 2 set the number of shares purchasable
under the Sturm Warrant at 2,110,140 shares of Series B Common Stock with an
exercise price of $1.80 per share (aggregate exercise price of approximately
$3,800,000). The Sturm Warrant, as amended, is subject to customary adjustment
on stock splits, stock dividends, subdivisions or combinations, but would not
otherwise be subject to adjustment. In addition, Spectra 1 and Spectra 2 waived
their maintenance rights provided under the Warrant Purchase/Right to Maintain
Agreement. The Sturm Entities, however, continue to have a right of first
refusal under the Amended and Restated Investor Rights Agreement as described
above.

BOARD OF DIRECTORS. Upon the closing of the Equity Investment, the
Company's Board of Directors was reconstituted with seven directors as follows:
three designees of the Sturm Entities--Donald L. Sturm, Melanie Sturm and James
O. Spitzenberger; two designees of Enron--C. Kevin Garland and Rodney Malcolm;
one management representative--Robert E. Randall; and John C. Stiska, an
existing director, as an independent member of the Board. Renney Senn and Robert
Cerasoli resigned from the Board at this time. In addition, pursuant to the
Stock Purchase Agreement within six months following the closing of the Equity
Investment, the Board would be further reconstituted to consist of seven
directors, three of whom would be designated by the Sturm Entities, two of whom
would be designated by Enron, one of whom would be designated by the holders of
Series B Common Stock and one of whom would be an independent director. The
right of the Series B stockholders to elect a director is set forth in the
Company's Certificate of Incorporation.

WAIVER OF BUSINESS OPPORTUNITIES. In an effort to alleviate possible
conflicts of interest among Enron, the Sturm Entities and the Company (and each
of their respective affiliates) with respect to their existing

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and prospective businesses, the Company revised its purpose clause in Article II
of its Certificate of Incorporation to provide that the Company generally may
not engage in oil, natural gas, electricity, water and other energy-related
business, in lieu of the general purpose clause that previously had been
applicable.

In addition to the restriction on business, the Company, the Sturm Entities
and Enron entered into a Business Opportunity Agreement to address the fact that
Enron and the Sturm Entities or their affiliates own, have agreements with and
otherwise participate in, telecommunications businesses, and may develop,
finance, acquire, enter into agreements with or otherwise participate in, such
businesses in the future, including businesses that are or may become
competitive with the business of the Company. In this regard, Enron advised the
Company and the Sturm Entities that (a) FirstPoint Communications, Inc. and its
affiliates ("FirstPoint"), which are Enron affiliates, are engaged in the
business of providing telecommunications services, and have or may from time to
time develop, finance, acquire, or acquire interests in, telecommunications and
related service and product companies that compete with the Company (including,
without limitation, those that compete in the Company's markets in California)
and (b) FirstPoint was at the time of the investment by Enron in the Company
pursuing a financing, acquisition or investment opportunity in a competitor or
potential competitor of the Company.

The Business Opportunity Agreement generally provides, except to the extent
expressly agreed by the parties and set forth therein, that (i) neither Enron,
the Sturm Entities nor any of their respective affiliates would have any
obligation to pursue any business opportunity jointly with the Company or to
offer any business opportunity to the Company, and any Enron or Sturm Entity
representative on the Board of Directors of the Company would have no obligation
to offer any business opportunity to the Company; (ii) Enron, the Sturm Entities
and their respective affiliates would be free to pursue business opportunities
jointly with parties other than the Company, including opportunities that had
telecommunications applications; and (iii) Enron, the Sturm Entities and their
respective affiliates would be free to compete with the Company and would have
no obligation to the Company to refrain from engaging in any business.

GRANT OF EXCLUSIVE RIGHTS TO ENRON. The Business Opportunity Agreement also
provides that the Company would, during an "Exclusivity Period" (as defined
below), grant Enron and its affiliates the exclusive right to pursue jointly
with the Company any business opportunity that includes both telecommunications
and utility applications (I.E., the marketing of one or more of natural gas,
electricity or water and the provision of related services, including provision
of the commodity, provision of transmission, transportation or distribution,
provision of financial and risk management services and products, and provision
of customer care functions (E.G., meter, billing and collection functions) (the
"Joint Application Opportunity")). The Exclusivity Period began on the closing
of the Equity Investment and continues until the earlier of (x) the third
anniversary of the date of closing of the Equity Investment or (y) the date upon
which Enron and any of its affiliates hold less than 5% of the capital stock or
warrants of the Company (determined on a fully-diluted basis as if all warrants
or rights to acquire capital stock were exercised, and determined without
reference to any voting rights). During the Exclusivity Period, the Company is
obligated to provide Enron notice of any Joint Application Opportunity that the
Company desires to pursue anywhere in the United States. If Enron notifies the
Company that it desires to participate in the Joint Application Opportunity,
then the Company cannot pursue the Joint Application Opportunity without the
participation of Enron. If Enron elects not to participate in the Joint
Application Opportunity, then the Company is free to pursue independently the
telecommunications portion of such Joint Application Opportunity without the
participation of Enron, but cannot pursue the Joint Application Opportunity with
any other person (except for provision of the telecommunications portion thereof
on a subcontract basis only), and Enron is free to pursue the Joint Application
Opportunity (including the utility applications and/or the telecommunications
applications) on its own or with any party other than the Company.

SECURITYHOLDERS AGREEMENT. The Sturm Entities and Enron entered into a
Securityholders Agreement, to which the Company is also a party, in connection
with the closing of the Equity Investment. The Securityholders Agreement
contains agreements among the Sturm Entities and Enron with respect to the

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designation, election, removal and replacement of the members of the Board of
Directors of the Company other than those elected by the holders of the
Company's Series B Common Stock. The Securityholders Agreement also contains
agreements among the Sturm Entities and Enron (i) providing for rights of first
offer with respect to certain proposed transfers of Common Stock or warrants of
the Company by any of the Sturm Entities or Enron, (ii) providing for rights to
purchase the Common Stock and warrants held by a party to the Securityholders
Agreement (other than the Company) that experiences a change of control or other
triggering event and (iii) providing for rights to participate in certain
proposed dispositions of Common Stock or warrants by any of the Sturm Entities
or Enron.

EMPLOYEE SEVERANCE PROGRAM. In connection with the Equity Investment, the
Company established an employee severance program applicable to any person who
was a full time employee of the Company as of December 1, 1997. The program
provides that if any eligible employee is terminated by the Company without
"cause" (as defined) before June 30, 1998, such employee would receive severance
pay in an amount equal to (i) six months base salary for employees with the
title of director, vice-president or higher, and (ii) two weeks base salary plus
one week base salary for each full year of employment with the Company (with a
minimum of four weeks base salary) for all other eligible employees. The Company
would also pay the base share toward a terminated employee's COBRA benefits,
until the employee accepts other employment for a period of up to nine months
following termination. With respect to such employees with the title of
director, vice-president or higher, the severance payments are subject to a
payment schedule and are conditioned upon execution of a non-competition
agreement.

TRANSACTION FEES AND EXPENSES. The Company paid the Sturm Entities and
Enron a transaction fee equal to six percent of the gross amount invested by
them in the Equity Investment (based upon the $30 million invested, $900,000 for
the Sturm Entities and $900,000 for Enron). Spectra 3 and Enron also received
the six percent transaction fee on the $20 million invested in the Additional
Equity Investment ($600,000 for the Sturm Entities and $600,000 for Enron). In
addition, the Company reimbursed all reasonable costs and expenses of the Sturm
Entities and Enron incurred in connection with the Stock Purchase Agreement, up
to a maximum of $50,000 for the Sturm Entities and $50,000 for Enron, plus the
$90,000 of required filing fees under the Hart-Scott-Rodino Act.

MANAGEMENT SERVICES AGREEMENTS. The Company executed Management Services
Agreements with Corporate Managers, LLC, a Colorado limited liability company
and an affiliate of the Sturm Entities, and Enron pursuant to which they will
provide management services to the Company for three years following the closing
of the Equity Investment for an annual management fee. Both Management Services
Agreements initially provided for annual management fees of $500,000 plus out of
pocket expenses. The Company has amended the Management Services Agreement with
Corporate Managers, LLC to provide for an annual management fee of $620,000 plus
out of pocket expenses because Mr. Sturm has taken a more active management role
with the Company than originally anticipated. Corporate Managers, LLC and Enron
each has the right in its discretion to terminate its Management Services
Agreement with the Company.

LEGAL MATTERS

John C. Stiska, one of the Company's directors, accepted an of-counsel
position with Latham & Watkins in July 1998. Latham & Watkins provides legal
services to the Company.

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DESCRIPTION OF EXCHANGE NOTES

GENERAL

The Exchange Notes will be issued pursuant to an indenture (the "Indenture")
between the Company and The Bank of New York, as trustee (the "Trustee"). The
Exchange Notes will evidence the same indebtedness as the Private Notes (which
they replace) and will be entitled to the benefits of the Indenture. The form
and terms of the Exchange Notes are the same as the form and terms of the
Private Notes except that (i) the Exchange Notes will have been registered under
the Securities Act, and, therefore, the Exchange Notes will not bear legends
restricting the transfer thereof and (ii) Holders of the Exchange Notes will not
be entitled to certain rights of Holders of Private Notes under the Registration
Rights Agreement, which rights will terminate upon the consummation of the
Exchange Offer. The terms of the Exchange Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (the "TIA"), as in effect on the date of the Indenture.
The following summary of the material provisions of the Indenture does not
purport to be complete and is qualified in its entirety by reference to such
agreement, including the definitions therein of certain terms used below. A copy
of the Indenture is available from the Company upon request. The definitions of
certain terms used in the following summary are set forth below under "--Certain
Definitions." As used below in this "Description of Exchange Notes" section, the
term "Company" refers only to FirstWorld Communications, Inc. and not to any of
its Subsidiaries.

The Exchange Notes will be senior obligations of the Company, will rank PARI
PASSU in right of payment with all existing and future senior Indebtedness of
the Company and will rank senior in right of payment to any future Subordinated
Indebtedness of the Company, but will be effectively subordinated to any secured
Indebtedness of the Company and future Indebtedness and other liabilities
(including Subordinated Indebtedness and trade payables) of the Company's
Subsidiaries. The Indenture will permit the incurrence of substantial additional
Indebtedness, including secured Indebtedness, by the Company and its
Subsidiaries, subject to certain restrictions. See "Risk Factors--Effective
Subordination of Notes; Holding Company Structure." As of June 30 1998, the
Company had no Subordinated Indebtedness and $7.1 million in outstanding
Indebtedness that ranks PARI PASSU with the Notes. The Notes will not be secured
by any assets and will be effectively subordinated to any existing and future
secured indebtedness of the Company and its Subsidiaries, to the extent of the
value of the assets securing such indebtedness. As of June 30, 1998, the Company
had approximately $243.2 million of outstanding indebtedness. In addition, all
existing and future liabilities (including trade payables) of the Company's
Subsidiaries will be effectively senior to the Notes. See "Risk
Factors--Effective Subordination of Notes; Holding Company Structure." As of
June 30, 1998, the total liabilities of the Company's Subsidiaries was
approximately $28.3 million. Any rights of the Company and its creditors,
including the Holders of Notes, to participate in the assets of any of the
Company's Subsidiaries upon any liquidation or reorganization of any such
subsidiary will be subject to the prior claims of that subsidiary's creditors
(including trade creditors).

The operations of the Company are conducted primarily through its
Subsidiaries and the Company is therefore dependent upon the cash flow of its
Subsidiaries to meet its obligations, including its obligations under the Notes.
See "Risk Factors--Effective Subordination of Notes; Holding Company Structure."

As of the date of the Indenture, the Company had six Subsidiaries, each of
which was designated as a Restricted Subsidiary. Under certain circumstances,
the Company will be able to designate Subsidiaries of the Company, including
Subsidiaries that it creates or acquires in the future, to be Unrestricted
Subsidiaries. Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants set forth in the Indenture. See "--Certain
Covenants--Restricted and Unrestricted Subsidiaries."

PRINCIPAL, MATURITY AND INTEREST

The Notes are limited in aggregate principal amount at maturity to $470
million and will mature on April 15, 2008. Until the Full Accretion Date, no
interest will accrue or be payable on the Notes, but the

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Accreted Value will accrete (representing the amortization of original issue
discount) between the date of issuance and the Full Accretion Date, on a
semi-annual bond equivalent basis using a 360-day year comprised of twelve
30-day months such that the Accreted Value shall be equal to the full principal
amount at maturity of the Notes on the Full Accretion Date. Beginning on the
Full Accretion Date, interest on the Notes will accrue at the rate of 13% per
annum and will be payable in cash semi-annually in arrears on April 15 and
October 15 of each year, commencing on October 15, 2003, to Holders of record on
the immediately preceding April 1 and October 1. Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the Full Accretion Date. Interest will be computed
on the basis of a 360-day year comprised of twelve 30-day months. Principal,
premium, if any, and interest on the Notes will be payable at the office or
agency of the Company maintained for such purpose within the City and State of
New York or, at the option of the Company, payment of interest may be made by
check mailed to the Holders of the Notes at their respective addresses set forth
in the register of Holders of Notes; PROVIDED that all payments of principal,
premium, if any, and interest with respect to Notes of Holders which have given
wire transfer instructions to the Company will be required to be made by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof. Until otherwise designated by the Company, the Company's office or
agency in New York, New York will be the office of the Trustee maintained for
such purpose. The Notes will be issued in denominations of $1,000 and integral
multiples thereof.

OPTIONAL REDEMPTION

Except as noted below, the Notes will not be redeemable at the Company's
option prior to April 15, 2003. Thereafter, the Notes will be subject to
redemption at any time at the option of the Company, in whole or in part, in
amounts of $1,000 or integral multiples thereof, upon not less than 30 nor more
than 60 days notice, at the redemption prices (expressed as percentages of
principal amount) set forth below, plus accrued and unpaid interest thereon to
the applicable redemption date, if redeemed during the twelve-month period
beginning on April 15 of the years indicated below:

<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
2003.............................................................................. 106.500%
2004.............................................................................. 104.333%
2005.............................................................................. 102.167%
2006 and thereafter............................................................... 100.000%
</TABLE>

In addition, at any time on or prior to April 15, 2001, the Company, at its
option, may use the net cash proceeds (but only to the extent such proceeds
consist of cash or Cash Equivalents) from one or more Public Equity Offerings or
the sale of Capital Stock (other than Disqualified Stock) to one or more
Strategic Investors in a single transaction or a series of related transactions
to redeem up to an aggregate of 35% of the Accreted Value of the Notes at a
redemption price of 113% of the Accreted Value thereof at the time of
redemption, plus accrued and unpaid interest, if any, to the date of redemption;
PROVIDED that at least 65% of the Accreted Value of the Notes originally issued
must remain outstanding immediately after the occurrence of such redemption. In
order to effect the foregoing redemption, the Company must mail a notice of
redemption no later than 30 days after the related Public Equity Offering or
sale of Capital Stock and must consummate such redemption within 60 days of the
closing of such Public Equity Offering or sale of Capital Stock.

SELECTION AND NOTICE

If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate; PROVIDED
that no Notes of $1,000 or less shall be

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redeemed in part. Notices of redemption shall be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each Holder of
Notes to be redeemed at its registered address. Notices of redemption may not be
conditional. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on Notes or portions of them called for redemption.

MANDATORY REDEMPTION

The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.

REPURCHASE AT THE OPTION OF HOLDERS

CHANGE OF CONTROL

Upon the occurrence of a Change of Control, the Indenture requires the
Company to make an offer to each Holder of Notes to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of such Holder's Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash (the "Change of Control Payment") equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest thereon to
the date of purchase (or if such Change of Control Offer is prior to the Full
Accretion Date, 101% of the Accreted Value thereof on the date of repurchase).
Within 10 days following any Change of Control, the Company or the Trustee (at
the expense of the Company) will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Notes on the date specified in such notice, which date shall be no
earlier than 30 days and no later than 60 days from the date such notice is
mailed (the "Change of Control Payment Date"), pursuant to the procedures
required by the Indenture and described in such notice. The Company will comply
with the applicable requirements of Section 14(e) under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes
pursuant to a Change of Control Offer.

On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) irrevocably deposit with the
paying agent for the Notes an amount equal to the Change of Control Payment in
respect of all Notes or portions thereof so tendered and (iii) deliver or cause
to be delivered to the Trustee the Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount or Accreted Value, as
applicable, of Notes or portions thereof tendered to the Company and accepted
for payment. The paying agent for the Notes will promptly mail to each Holder of
Notes so tendered the Change of Control Payment for such Notes, and the Trustee
will promptly authenticate and mail (or cause to be transferred by book-entry)
to each Holder a new Note equal in principal amount at maturity to any
unpurchased portion of the Notes surrendered, if any; provided that each such
new Note will be in a principal amount of $1,000 or an integral multiple
thereof.

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ASSET SALES

The Company will not, and will not permit any Restricted Subsidiary to,
consummate an Asset Sale unless (i) the Company or such Restricted Subsidiary,
as the case may be, receives consideration for such Asset Sale at least equal to
the Fair Market Value (as evidenced by a Board Resolution delivered to the
Trustee) of the Property or assets sold or otherwise disposed of; (ii) at least
80% of the consideration received by the Company or such Restricted Subsidiary
for such Property or assets consists of (a) cash, Cash Equivalents, or
Telecommunications Assets; and/or (b) the assumption of Indebtedness of the
Company or such Restricted Subsidiary (other than Indebtedness that is
subordinated to the Notes) and the release of the Company or the Restricted
Subsidiary, as the case may be, from all liability on the Indebtedness assumed;
and (iii) the Company or such Restricted Subsidiary, as the case may be, uses
the Net Cash Proceeds from such Asset Sale in the manner set forth in the next
two paragraphs.

Within 360 days after any Asset Sale, the Company or such Restricted
Subsidiary, as the case may be, may at its option (i) reinvest an amount equal
to the Net Cash Proceeds (or any portion thereof) from such Asset Sale in
Telecommunications Assets or in Voting Stock of any Person engaged in the
Telecommunications Business in the United States (PROVIDED that such Person
concurrently becomes a Restricted Subsidiary of the Company) and/or (ii) apply
an amount equal to such Net Cash Proceeds (or remaining Net Cash Proceeds) to
the permanent reduction of Indebtedness of the Company (other than Indebtedness
to a Restricted Subsidiary) that is senior to or PARI PASSU with the Notes or to
the permanent reduction of Indebtedness or preferred stock of any Restricted
Subsidiary (other than Indebtedness to, or preferred stock owned by, the Company
or another Restricted Subsidiary). Pending the final application of any such Net
Cash Proceeds, the Company may temporarily reduce revolving credit borrowings or
otherwise invest such Net Cash Proceeds in any manner that is not prohibited by
the Indenture. Any Net Cash Proceeds from any Asset Sale that are not used to
reinvest in Telecommunications Assets or in Capital Stock of any Person engaged
in the Telecommunications Business (as described above) and/or to reduce senior
or PARI PASSU Indebtedness of the Company or Indebtedness or preferred stock of
its Restricted Subsidiaries shall constitute "Excess Proceeds."

If at any time the aggregate amount of Excess Proceeds calculated as of such
date exceeds $5 million, the Company shall, within 30 days, use such Excess
Proceeds to make an offer to purchase (an "Asset Sale Offer") on a PRO RATA
basis, from all Holders, Notes in an aggregate principal amount equal to the
maximum principal amount that may be purchased out of Excess Proceeds, at a
purchase price (the "Offer Purchase Price") in cash equal to 100% of the
Accreted Value thereof on any purchase date occurring prior to the Full
Accretion Date, or 100% of the principal amount thereof on any purchase date
occurring on or after the Full Accretion Date, plus accrued and unpaid interest,
if any, to the purchase date, in accordance with the procedures set forth in the
Indenture. Upon completion of an Asset Sale Offer (including payment of the
Offer Purchase Price), any surplus Excess Proceeds that were the subject of such
offer shall cease to be Excess Proceeds, and the Company may then use such
amounts for general corporate purposes.

The Company will comply with the requirements of Section 14(e) under the
Exchange Act and any other securities laws and regulations, to the extent such
laws and regulations are applicable, in connection with the repurchase of Notes
pursuant to an Asset Sale Offer. If the aggregate Accreted Value or principal
amount, as the case may be, of Notes tendered pursuant to such Asset Sale Offer
exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be
purchased on a pro rata basis.

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CERTAIN COVENANTS

Set forth below are certain covenants that are contained in the Indenture:

LIMITATION ON CONSOLIDATED INDEBTEDNESS

The Company will not, and will not permit any Restricted Subsidiary to,
Incur any Indebtedness (including Acquired Indebtedness) after the Issue Date
unless the ratio of (i) the aggregate consolidated principal amount of
Indebtedness of the Company outstanding as of the most recent available
quarterly or annual balance sheet, after giving PRO FORMA effect to the
Incurrence of such Indebtedness and any other Indebtedness Incurred since such
balance sheet date and the receipt and application of the proceeds thereof, to
(ii) Consolidated Cash Flow Available for Fixed Charges for the four full fiscal
quarters immediately preceding the Incurrence of such Indebtedness for which
consolidated financial statements of the Company have become available,
determined on a PRO FORMA basis as if any such Indebtedness had been Incurred
and the proceeds thereof had been applied at the beginning of such four fiscal
quarters, would be less than 6.0 to 1.0 for such four-quarter periods ending on
or prior to December 31, 2000 and 5.5 to 1.0 for such periods ending thereafter,
after giving PRO FORMA effect to the Incurrence of such Indebtedness and any
other Indebtedness Incurred since such balance sheet date and the receipt and
application of the proceeds thereof.

Notwithstanding the foregoing limitation, the provisions of the preceding
paragraph will not apply to the Incurrence of any of the following items of
Indebtedness, each such item to be given independent effect:

(i) the Incurrence by the Company and/or any of its Restricted
Subsidiaries of Indebtedness under Senior Credit Facilities in an aggregate
principal amount outstanding or available at any one time not to exceed $75
million, and any renewal, extension, refinancing or refunding thereof in an
amount which, together with any principal amount remaining outstanding or
available under all Senior Credit Facilities, does not exceed the aggregate
principal amount outstanding or available under all Senior Credit Facilities
immediately prior to such renewal, extension, refinancing or refunding, less
amounts permanently repaid with proceeds from an Asset Sale;

(ii) the Incurrence by the Company and/or any of its Restricted
Subsidiaries of Purchase Money Indebtedness and Vendor Financing
Indebtedness, provided that the aggregate amount of such Purchase Money
Indebtedness or Vendor Financing Indebtedness Incurred does not exceed 80%
of the total cost of the Telecommunications Assets financed therewith (or,
in the case of Vendor Financing Indebtedness, 100% of the total cost of the
Telecommunications Assets financed therewith if such Vendor Financing
Indebtedness was extended for the purchase of tangible physical assets and
was so financed by the vendor thereof or an affiliate of such vendor);

(iii) the Incurrence by the Company and/or any of its Restricted
Subsidiaries, as applicable, of Indebtedness owed by the Company to any
Restricted Subsidiary of the Company or Indebtedness owed by a Restricted
Subsidiary of the Company to the Company or another Restricted Subsidiary of
the Company; provided that upon (x) the transfer or other disposition by
such Restricted Subsidiary or the Company of any Indebtedness so permitted
to a Person other than the Company or another Restricted Subsidiary of the
Company, (y) the issuance (other than directors' qualifying shares), sale,
lease, transfer or other disposition of shares of Capital Stock (including
by consolidation or merger) of such Restricted Subsidiary to a Person other
than the Company or another such Restricted Subsidiary or (z) the
designation of such Restricted Subsidiary as an Unrestricted Subsidiary, the
provisions of this clause (iii) shall no longer be applicable to such
Indebtedness and such Indebtedness shall be deemed to have been Incurred at
the time of such transfer or other disposition;

(iv) the Incurrence by the Company and/or any of its Restricted
Subsidiaries of Indebtedness Incurred to renew, extend, refinance or refund
(each, a "refinancing") the Notes or Indebtedness

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outstanding at the date of the Indenture or Purchase Money Indebtedness or
Vendor Financing Indebtedness Incurred pursuant to clause (ii) of this
paragraph in an aggregate amount (as determined pursuant to the definition
of "Indebtedness") not to exceed the aggregate amount of Indebtedness (as so
determined), and accrued interest on, the Indebtedness so refinanced plus
the amount of any premium required to be paid in connection with such
refinancing pursuant to the terms of the Indebtedness so refinanced or the
amount of any premium reasonably determined by the Company as necessary to
accomplish such refinancing by means of a tender offer or privately
negotiated repurchase, plus the reasonable expenses of the Company Incurred
in connection with such refinancing; PROVIDED that Indebtedness the proceeds
of which are used to refinance the Notes or Indebtedness which is PARI PASSU
to the Notes or Indebtedness which is subordinate in right of payment to the
Notes shall only be permitted under this clause (iv) if (A) in the case of
any refinancing of the Notes or Indebtedness which is PARI PASSU to the
Notes, the refinancing Indebtedness is PARI PASSU to the Notes or
constitutes Subordinated Indebtedness, and, in the case of any refinancing
of Subordinated Indebtedness, the refinancing Indebtedness constitutes
Subordinated Indebtedness and (B) in any case, the refinancing Indebtedness
by its terms, or by the terms of any agreement or instrument pursuant to
which such Indebtedness is issued, (x) does not provide for payments of
principal of such Indebtedness at stated maturity or by way of a sinking
fund applicable thereto or by way of any mandatory redemption, defeasance,
retirement or repurchase thereof by the Company (including any redemption,
retirement or repurchase which is contingent upon events or circumstances,
but excluding any retirement required by virtue of the acceleration of any
payment with respect to such Indebtedness upon any event of default
thereunder), in each case prior to the time the same are required by the
terms of the Indebtedness being refinanced and (y) does not permit
redemption or other retirement (including pursuant to an offer to purchase
made by the Company or a Restricted Subsidiary of the Company) of such
Indebtedness at the option of the holder thereof prior to the time the same
are required by the terms of the Indebtedness being refinanced, other than a
redemption or other retirement at the option of the holder of such
Indebtedness (including pursuant to an offer to purchase made by the Company
or a Restricted Subsidiary of the Company) which is conditioned upon a
change of control pursuant to provisions substantially similar to those
described under "--Repurchase at the Option of Holders--Change of Control;"

(v) the Incurrence by the Company and/or any of its Restricted
Subsidiaries of Indebtedness consisting of Permitted Interest Rate
Protection Agreements;

(vi) the Incurrence by the Company and/or any of its Restricted
Subsidiaries of Indebtedness (A) in respect of performance, surety or appeal
bonds provided in the ordinary course of business or (B) arising from
customary agreements providing for indemnification, adjustment of purchase
price for closing balance sheet changes within 90 days after closing, or
similar obligations, or from Guarantees or letters of credit, surety bonds
or performance bonds securing any obligations of the Company or any of its
Restricted Subsidiaries pursuant to such agreements, in each case Incurred
in connection with the disposition of any business, assets or Restricted
Subsidiary of the Company (other than Guarantees of Indebtedness Incurred by
any Person acquiring all or any portion of such business, assets or
Restricted Subsidiary of the Company for the purpose of financing such
acquisition) and in an aggregate principal amount not to exceed the gross
proceeds actually received by the Company or any Restricted Subsidiary in
connection with such disposition;

(vii) the Incurrence by the Company of Indebtedness (other than secured
Acquired Indebtedness) in an aggregate principal amount not to exceed 2.0
times the sum of the net cash proceeds received by the Company after the
date of the Indenture in connection with any issuance and sale of Capital
Stock (other than Disqualified Stock and other than the proceeds of the
Equity Commitment), PROVIDED that such Indebtedness does not mature prior to
the Stated Maturity of the Notes or has an Average Life at least equal to
the Notes; and

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(viii) the Incurrence by the Company and/or any of its Restricted
Subsidiaries of Indebtedness not otherwise permitted to be Incurred pursuant
to clauses (i) through (vii) above, which, together with any other
outstanding Indebtedness Incurred pursuant to this clause (viii), has an
aggregate principal amount not in excess of $10 million at any time
outstanding.

Notwithstanding any other provision of this "--Certain Covenants--Limitation
on Consolidated Indebtedness" covenant, the maximum amount of Indebtedness that
the Company or a Restricted Subsidiary may Incur pursuant to this "--Certain
Covenants--Limitation on Consolidated Indebtedness" covenant shall not be deemed
to be exceeded due solely as the result of fluctuations in the exchange rates of
currencies.

For purposes of determining any particular amount of Indebtedness under this
"--Certain Covenants--Limitation on Consolidated Indebtedness" covenant (1)
Guarantees, Liens or obligations with respect to letters of credit supporting
Indebtedness otherwise included in the determination of such particular amount
shall not be included and (2) any Liens granted pursuant to the equal and
ratable provisions referred to in the "--Certain Covenants--Limitation on Liens"
covenant described below shall not be treated as Indebtedness. For purposes of
determining compliance with this "--Certain Covenants-- Limitation on
Consolidated Indebtedness" covenant, in the event that an item of Indebtedness
meets the criteria of more than one of the types of Indebtedness described in
the above clauses, the Company, in its sole discretion, shall classify such item
of Indebtedness and only be required to include the amount and type of such
Indebtedness in one of such clauses.

LIMITATION ON RESTRICTED PAYMENTS

The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, make any Restricted Payment unless, at the time of
and after giving effect to such proposed Restricted Payment (i) no Default or
Event of Default shall have occurred and be continuing or shall occur as a
consequence thereof; (ii) after giving effect, on a PRO FORMA basis, to such
Restricted Payment and the Incurrence of any Indebtedness the net proceeds of
which are used to finance such Restricted Payment, the Company could Incur at
least $1.00 of additional Indebtedness pursuant to the first paragraph of
"--Certain Covenants--Limitation on Consolidated Indebtedness;" and (iii) after
giving effect to such Restricted Payment on a PRO FORMA basis, the aggregate
amount expended (the amount so expended, if other than cash, to be determined in
good faith by a majority of the disinterested members of the Board of Directors,
whose determination shall be conclusive and evidenced by a resolution thereof
filed with the Trustee) or declared for all Restricted Payments after the Issue
Date does not exceed the sum of (A) 50% of the Consolidated Net Income of the
Company (or, if Consolidated Net Income shall be a deficit, minus 100% of such
deficit) for the period (taken as one accounting period) beginning on the last
day of the fiscal quarter immediately preceding the Issue Date and ending on the
last day of the fiscal quarter for which the Company's financial statements have
become available immediately preceding the date of such Restricted Payment, PLUS
(B) 100% of the net reduction in Investments, subsequent to the Issue Date, in
any Person, resulting from payments of interest on Indebtedness, dividends,
repayments of loans or advances, or other transfers of Property (but only to the
extent such interest, dividends, repayments or other transfers of Property are
not included in the calculation of Consolidated Net Income), in each case to the
Company or any Restricted Subsidiary from any Person (including, without
limitation, from Unrestricted Subsidiaries) or from redesignations of
Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as
provided in the definition of "Investments"), not to exceed in the case of any
Person the amount of Investments previously made subsequent to the Issue Date by
the Company or any Restricted Subsidiary in such Person and which was treated as
a Restricted Payment PLUS (C) the aggregate net proceeds (other than proceeds
received by the Company pursuant to the Equity Commitment or used in the manner
set forth in clause (ii) of the following paragraph) received after the date of
the Indenture, including the fair value of property other than cash (determined
in good faith by a majority of the disinterested members of the Board of
Directors, whose determination shall be conclusive and evidenced by a resolution
thereof

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filed with the Trustee): (x) as capital contributions to the Company, (y) from
the issuance (other than to a Restricted Subsidiary) of Capital Stock (other
than Disqualified Stock) of the Company and warrants, rights or options on
Capital Stock (other than Disqualified Stock) of the Company, or (z) from the
conversion of Indebtedness of the Company into Capital Stock (other than
Disqualified Stock and other than by a Restricted Subsidiary) of the Company
after the date of the Indenture.

The foregoing limitations shall not prevent the Company from (i) paying a
dividend at any time within 60 days after the declaration thereof if, on the
declaration date, the Company could have paid such dividend in compliance with
the preceding paragraph; (ii) retiring (A) any Capital Stock of the Company or
any Restricted Subsidiary of the Company, (B) Indebtedness of the Company that
is subordinate to the Notes, in exchange for, or out of the proceeds of, the
substantially concurrent sale of Qualified Stock of the Company or (C)
Indebtedness of a Restricted Subsidiary which is subordinate (whether pursuant
to its terms or by operation of law) in right of payment to the Notes and which
was scheduled to mature on or after the maturity of the Notes, in exchange for,
or out of the proceeds of (x) the substantially concurrent sale of Qualified
Stock of the Company or (y) the substantially concurrent Incurrence of
Indebtedness of the Company or any Restricted Subsidiary that (I) is permitted
under the covenant described under "--Certain Covenants--Limitation on
Consolidated Indebtedness" (II) is not secured by any assets of the Company or
any Restricted Subsidiary to a greater extent than the retired Indebtedness was
so secured, (III) has an Average Life at least as long as the retired
Indebtedness and (IV) is subordinated in right of payment to the Notes at least
to the same extent as the retired Indebtedness; (iii) retiring any Indebtedness
of the Company that is subordinated in right of payment to the Notes in exchange
for, or out of the proceeds of, the substantially concurrent Incurrence of
Indebtedness of the Company (other than Indebtedness to a Subsidiary of the
Company), provided that such new Indebtedness (A) is subordinated in right of
payment to the Notes at least to the same extent as, (B) has an Average Life at
least as long as, and (C) has no scheduled principal payments due in any amount
earlier than, any equivalent amount of principal under the Indebtedness so
retired; (iv) making payments or distributions to dissenting stockholders
pursuant to applicable law in connection with a consolidation, merger or
transfer of assets permitted under "--Consolidation, Merger, Conveyance, Lease
or Transfer"; (v) retiring any Capital Stock of the Company to the extent
necessary (as determined in good faith by a majority of the disinterested
members of the Board of Directors, whose determination shall be conclusive and
evidenced by a resolution thereof filed with the Trustee) to prevent the loss,
or to secure the renewal or reinstatement, of any license or franchise held by
the Company or any Restricted Subsidiary from any governmental agency; (vi)
retiring any Capital Stock or warrants or options to acquire Capital Stock of
the Company or any Restricted Subsidiary held by any directors, officers or
employees of the Company or any Restricted Subsidiary, PROVIDED that the
aggregate price paid for all such retired Capital Stock, warrants or options
shall not exceed $500,000 in any twelve-month period; (vii) making Investments
in connection with Permitted Joint Ventures in an aggregate amount not to exceed
$15 million; and (viii) making Investments not otherwise permitted in an
aggregate amount not to exceed $5 million at any time outstanding.

In determining the amount of Restricted Payments permissible under this
covenant, amounts expended pursuant to clauses (ii) and (iii) of the foregoing
paragraph shall not be included as Restricted Payments.

Not later than the date of making any Restricted Payment (including any
Restricted Payment permitted to be made pursuant to the three previous
paragraphs), the Company shall deliver to the Trustee an Officers' Certificate
stating that such Restricted Payment is permitted and setting forth the basis
upon which the required calculations were computed, which calculations may be
based upon the Company's latest available financial statements.

LIMITATION ON LIENS

The Company may not, and may not permit any Restricted Subsidiary of the
Company to, Incur or suffer to exist any Lien (other than a Permitted Lien) on
or with respect to any property or assets now

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owned or hereafter acquired to secure any Indebtedness without making, or
causing such Restricted Subsidiary to make, effective provision for securing the
Notes (i) equally and ratably with such Indebtedness as to such property for so
long as such Indebtedness will be so secured or (ii) in the event such
Indebtedness is Indebtedness of the Company which is subordinate in right of
payment to the Notes, prior to such Indebtedness as to such property for so long
as such Indebtedness will be so secured.

LIMITATION ON SALE AND LEASEBACK TRANSACTIONS

The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, enter into, assume, Guarantee or otherwise become
liable with respect to any Sale and Leaseback Transaction (other than a Sale and
Leaseback Transaction between the Company or a Restricted Subsidiary on the one
hand and a Restricted Subsidiary or the Company on the other hand), unless (i)
the Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Sale and Leaseback Transaction at least equal
to the Fair Market Value (as evidenced by a Board Resolution delivered to the
Trustee) of the Property subject to such transaction; (ii) the Attributable
Indebtedness of the Company or such Restricted Subsidiary with respect thereto
is included as Indebtedness and would be permitted by the covenant described
under "--Certain Covenants--Limitation on Consolidated Indebtedness"; (iii) the
Company or such Restricted Subsidiary would be permitted to create a Lien on
such Property without securing the Notes by the covenant described under
"--Certain Covenants--Limitation on Liens"; and (iv) the Net Cash Proceeds from
such transaction are applied in accordance with the covenant described under
"--Asset Sales," if applicable.

LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES

The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, cause or suffer to exist or become effective, or enter
into, any encumbrance or restriction (other than pursuant to law or regulation)
on the ability of any Restricted Subsidiary (i) to pay dividends or make any
other distributions in respect of its Capital Stock or pay any Indebtedness or
other obligation owed to the Company or any Restricted Subsidiary; (ii) to make
loans or advances to the Company or any Restricted Subsidiary; or (iii) to
transfer any of its Property to the Company or any other Restricted Subsidiary,
except: (a) any encumbrance or restriction existing as of the Issue Date
pursuant to the Indenture or any other agreement relating to any Existing
Indebtedness or any Indebtedness under a Senior Credit Facility otherwise
permitted under the Indenture; (b) any encumbrance or restriction pursuant to an
agreement relating to an acquisition of Property, so long as the encumbrances or
restrictions in any such agreement relate solely to the Property so acquired;
(c) any encumbrance or restriction relating to any Indebtedness of any
Restricted Subsidiary existing on the date on which such Restricted Subsidiary
is acquired by the Company or another Restricted Subsidiary (other than any such
Indebtedness Incurred by such Restricted Subsidiary in connection with or in
anticipation of such acquisition); (d) any encumbrance or restriction existing
under or by reason of applicable law; (e) any encumbrance or restriction
pursuant to an agreement effecting a permitted refinancing of Indebtedness
issued pursuant to an agreement referred to in the foregoing clauses (a) through
(d), so long as the encumbrances and restrictions contained in any such
refinancing agreement are not materially more restrictive than the encumbrances
and restrictions contained in such agreements; (f) customary provisions (A) that
restrict the subletting, assignment or transfer of any property or asset that is
a lease, license, conveyance or contract or similar property or asset; (B)
existing by virtue of any transfer of, agreement to transfer, option or right
with respect to, or Lien on, any property or assets of the Company or any
Restricted Subsidiary not otherwise prohibited by the Indenture or (C) arising
or agreed to in the ordinary course of business, not relating to any
Indebtedness, and that do not, individually or in the aggregate, detract from
the value of property or assets of the Company or any Restricted Subsidiary in
any manner material to the Company or any Restricted Subsidiary; (g) in the case
of clause (iii) above, restrictions contained in any security agreement
(including a Capital Lease Obligation) securing Indebtedness of the Company or a
Restricted Subsidiary otherwise permitted under the Indenture, but only to the
extent such restrictions restrict the transfer of the property

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subject to such security agreement and (h) any restriction with respect to a
Restricted Subsidiary of the Company imposed pursuant to an agreement which has
been entered into for the sale or disposition of all or substantially all of the
Capital Stock or assets of such Restricted Subsidiary, provided that the
consummation of such transaction would not result in an Event of Default or an
event that, with the passing of time or the giving of notice or both, would
constitute an Event of Default, that such restriction terminates if such
transaction is not consummated and that the consummation or abandonment of such
transaction occurs within one year of the date such agreement was entered into.

Nothing contained in this "--Certain Covenants--Limitation on Dividend and
Other Payment Restrictions Affecting Restricted Subsidiaries" covenant shall
prevent the Company or any other Restricted Subsidiary from (1) creating,
Incurring, assuming or suffering to exist any Liens otherwise permitted under
the covenant described in "--Certain Covenants--Limitation on Liens" or (2)
restricting the sale or other disposition of property or assets of the Company
or any of its Restricted Subsidiaries that secure Indebtedness of the Company or
any of its Restricted Subsidiaries otherwise permitted under "--Certain
Covenants--Limitation on Consolidated Indebtedness."

LIMITATION ON ISSUANCE AND SALE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES

The Company (i) shall not permit any Restricted Subsidiary to issue any
Capital Stock other than to the Company or a Restricted Subsidiary unless
immediately after giving effect thereto such Restricted Subsidiary would no
longer constitute a Restricted Subsidiary and any Investment of the Company or
any other Restricted Subsidiary in such Restricted Subsidiary would have been
permitted under "--Certain Covenants--Limitation on Restricted Payments" if made
on the date of such issuance and (ii) shall not permit any Person other than the
Company or a Restricted Subsidiary to own any Capital Stock of any Restricted
Subsidiary, other than directors' qualifying shares except for a sale of 100% of
the Capital Stock of a Restricted Subsidiary sold in a transaction not
prohibited by the covenant described under "Repurchase at the Option of
Holders--Asset Sales."

TRANSACTIONS WITH AFFILIATES

The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, sell, lease, transfer, or otherwise dispose of, any
of its Properties or assets to, or purchase any Property or assets from, or
enter into any contract, agreement, understanding, loan, advance or Guarantee
with or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (a) such Affiliate Transaction or series of related
Affiliate Transactions is on terms that are no less favorable to the Company or
such Restricted Subsidiary than those that would have been obtained in a
comparable arms-length transaction by the Company or such Restricted Subsidiary
with a Person that is not an Affiliate (or, in the event that there are no
comparable transactions involving Persons who are not Affiliates of the Company
or the relevant Restricted Subsidiary to apply for comparative purposes, is
otherwise on terms that, taken as a whole, the Company has determined to be fair
to the Company or the relevant Restricted Subsidiary) and (b) the Company
delivers to the Trustee (i) with respect to any Affiliate Transaction or series
of related Affiliate Transactions involving aggregate payments in excess of $1
million, a Board Resolution certifying that such Affiliate Transaction or series
of related Affiliate Transactions complies with clause (a) above and that such
Affiliate Transaction or series of related Affiliate Transactions has been
approved by a majority of the disinterested members of the Board of Directors
who have determined that such Affiliate Transaction or series of related
Affiliate Transactions is in the best interest of the Company or such Restricted
Subsidiary and (ii) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate payments in excess of $10
million, a written opinion from an investment banking firm of national standing
in the United States which, in the good faith judgment of the Board of
Directors, is independent with respect to the Company and its Subsidiaries and
qualified to perform such task; PROVIDED that the following shall not be deemed
Affiliate Transactions: (i) any employment agreement entered into by the Company
or any of its Restricted Subsidiaries in the ordinary course of business and

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consistent with industry practice; (ii) any agreement or arrangement with
respect to the compensation of a director or officer of the Company or any
Restricted Subsidiary approved by a majority of the disinterested members of the
Board of Directors and consistent with industry practice; (iii) transactions
between or among the Company and its Restricted Subsidiaries; (iv) transactions
permitted by the covenant described under "--Certain Covenants--Limitation on
Restricted Payments"; and (v) transactions pursuant to the Management Services
Agreements described under "Certain Transactions," as in effect on the Issue
Date.

LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS

The Indenture provides that the Company will not permit any Subsidiary,
directly or indirectly, to Guarantee, assume or in any other manner become
liable with respect to any Pari Passu Indebtedness or Subordinated Indebtedness
of the Company unless such Subsidiary simultaneously executes and delivers a
supplemental indenture to the Indenture providing for a Guarantee of the Notes
on the same terms as the Guarantee of such Indebtedness; PROVIDED that (i) such
Guarantee need not be secured unless required pursuant to "Limitation on Liens"
and (ii) if such Indebtedness is by its terms expressly subordinated to the
Notes, any such assumption, Guarantee or other liability of such Subsidiary with
respect to such Indebtedness shall be subordinated to such Subsidiary's
Guarantee of the Notes at least to the same extent as such Indebtedness is
subordinated to the Notes. This paragraph shall not apply to any Guarantee or
assumption of liability of Indebtedness permitted under the Indenture described
in clauses (i), (iv), (v) and (vi) of the second paragraph under "--Limitation
on Consolidated Indebtedness."

Notwithstanding the foregoing, any Guarantee by a Subsidiary of the Notes
shall provide by its terms that it (and all Liens securing the same) shall be
automatically and unconditionally released and discharged upon any sale,
exchange or transfer, to any Person not an Affiliate of the Company, of all or
substantially all of the assets of such Subsidiary or all of the Capital Stock
of such Subsidiary owned by the Company, which transaction is in compliance with
the terms of the Indenture and such Subsidiary is released from its Guarantees
of other Indebtedness of the Company or any of its Subsidiaries.

RESTRICTED AND UNRESTRICTED SUBSIDIARIES

(a) The Company may designate a Subsidiary (including a newly formed or
newly acquired Subsidiary) of the Company or any of its Restricted Subsidiaries
as an Unrestricted Subsidiary so long as (A) such Subsidiary (i) does not have
any obligations which, if in Default, would result in a cross default on
Indebtedness of the Company or a Restricted Subsidiary (other than Indebtedness
to the Company or a Restricted Subsidiary), (ii) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of the Company, unless such agreement, contract,
arrangement or understanding constitutes a Restricted Payment permitted by the
Indenture; (iii) is a Person with respect to which neither the Company nor any
of its Restricted Subsidiaries has any direct or indirect obligation (x) to
subscribe for additional Equity Interests or (y) to maintain or preserve such
Person's financial condition or to cause such Person to achieve any specified
levels of operating results; (iv) has not Guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of the Company or any of
its Restricted Subsidiaries; (v) has at least one director on its board of
directors that is not a director or executive officer of the Company or any of
its Restricted Subsidiaries or has at least one executive officer that is not a
director or executive officer of the Company or any of its Restricted
Subsidiaries, (vi) such Subsidiary does not own any Telecommunications Assets
that are essential to the operation of the Company's business, taken as a whole
and (vii) one of the following is true: (x) such Subsidiary has total assets of
$1,000 or less, (y) such Subsidiary has assets of more than $1,000 and an
Investment in such Subsidiary in an amount equal to the Fair Market Value of
such Subsidiary would then be permitted under the first paragraph of "--Certain
Covenants--Limitation on Restricted Payments" or (z) such designation is
effective immediately upon such Person becoming a

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Subsidiary; and (B) no Default or Event of Default would occur as a result of
such designation. Unless so designated as an Unrestricted Subsidiary, any Person
that becomes a Subsidiary of the Company or any of its Restricted Subsidiaries
shall be classified as a Restricted Subsidiary thereof.

(b) The Company will not, and will not permit any of its Restricted
Subsidiaries to, take any action or enter into any transaction or series of
related transactions that would result in a Person (other than a newly formed
Subsidiary having no outstanding Indebtedness (other than Indebtedness to the
Company or a Restricted Subsidiary) at the date of determination) becoming a
Restricted Subsidiary (whether through an acquisition, the redesignation of an
Unrestricted Subsidiary or otherwise) unless, after giving effect to such
action, transaction or series of related transactions, on a pro forma basis, (i)
the Company could Incur at least $1.00 of additional Indebtedness pursuant to
"--Certain Covenants--Limitation on Consolidated Indebtedness" and (ii) no
Default or Event of Default would occur.

(c) Subject to clause (b), an Unrestricted Subsidiary may be redesignated as
a Restricted Subsidiary. The designation of a Subsidiary as an Unrestricted
Subsidiary or the designation of an Unrestricted Subsidiary as a Restricted
Subsidiary in compliance with clause (b) shall be made by the Board of Directors
pursuant to a Board Resolution delivered to the Trustee and shall be effective
as of the date specified in such Board Resolution, which shall not be prior to
the date such Board Resolution is delivered to the Trustee.

BUSINESS ACTIVITIES

The Indenture provides that the Company and its Restricted Subsidiaries may
not, directly or indirectly, engage in any business other than the
Telecommunications Business.

PAYMENTS FOR CONSENT

The Indenture provides that neither the Company nor any of its Affiliates
shall, directly or indirectly, pay or cause to be paid any consideration,
whether by way of interest, fee or otherwise, to any Holder of any Notes for or
as an inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the Notes unless such consideration is offered to
be paid or agreed to be paid to all Holders of the Notes that consent, waive or
agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement.

REPORTS

The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the Company
will furnish to the Holders of Notes and file with the Commission (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
were required to file such forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" that describes the
financial condition and results of operations of the Company and its
consolidated Subsidiaries (showing in reasonable detail, either on the face of
the financial statements or in the footnotes thereto and in Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
financial condition and results of operations of the Company and its Restricted
Subsidiaries separate from the financial condition and results of operations of
the Unrestricted Subsidiaries of the Company) and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed with
the Commission on Form 8-K if the Company were required to file such reports, in
each case within the time periods specified in the Commission's rules and
regulations. In addition, for so long as any Notes are outstanding, the Company
will furnish to the Holders of the Notes, securities analysts and prospective
investors or beneficial owners of the Notes, upon their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.

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CONSOLIDATION, MERGER, CONVEYANCE, LEASE OR TRANSFER

The Company will not, in any transaction or series of related transactions,
consolidate with, or merge with or into, any other Person (other than a merger
of a Restricted Subsidiary into the Company in which the Company is the
continuing corporation), or sell, convey, assign, transfer, lease or otherwise
dispose of all or substantially all of the Property and assets of the Company
and the Restricted Subsidiaries taken as a whole to any other Person, unless:

(i) either (a) the Company shall be the continuing corporation or (b)
the corporation (if other than the Company) formed by such consolidation or
into which the Company is merged, or the Person which acquires, by sale,
assignment, conveyance, transfer, lease or disposition, all or substantially
all of the Property and assets of the Company and the Restricted
Subsidiaries taken as a whole (such corporation or Person, the "Surviving
Entity"), shall be a corporation organized and validly existing under the
laws of the United States of America, any state thereof or the District of
Columbia, and shall expressly assume, by a supplemental indenture, the due
and punctual payment of the principal of (and premium, if any) and interest
on all the Notes and the performance of the Company's covenants and
obligations under the Indenture;

(ii) immediately after giving effect to such transaction or series of
related transactions on a PRO FORMA basis (including, without limitation,
any Indebtedness Incurred in connection with or in respect of such
transaction or series of related transactions), no Event of Default or
Default shall have occurred and be continuing;

(iii) immediately after giving effect to such transaction or series of
related transactions on a PRO FORMA basis (including, without limitation,
any Indebtedness Incurred in connection with or in respect of such
transaction or series of related transactions), the Company (or the
Surviving Entity, if the Company is not continuing) would (A) be permitted
to Incur at least $1.00 of additional Indebtedness pursuant to the first
paragraph of "--Certain Covenants--Limitation on Consolidated Indebtedness"
and (B) have a Consolidated Net Worth that is not less than the Consolidated
Net Worth of the Company immediately before such transaction or series of
related transactions; and

(iv) if, as a result of any such transaction, Property of the Company
would become subject to a Lien prohibited by the provisions of the Indenture
described under "--Certain Covenants--Limitation on Liens" above, the
Company or the successor entity shall have secured the Notes as required
thereby.

EVENTS OF DEFAULT

Each of the following is an "Event of Default" under the Indenture:

(a) default in the payment of interest (including any Special Interest)
on any Note when the same becomes due and payable, and the continuance of
such default for a period of 30 days;

(b) default in the payment of the principal of (or premium, if any, on)
any Note at its maturity, upon optional redemption, required repurchase
(including pursuant to a Change of Control Offer or an Asset Sale Offer) or
otherwise or the failure to make an offer to purchase any Note as required;

(c) the Company or any of its Restricted Subsidiaries fails to comply
with any of its covenants or agreements described under "--Repurchase at the
Option of Holders," "--Certain Covenants-- Limitation on Restricted
Payments," "--Certain Covenants--Limitation on Consolidated Indebtedness,"
"--Certain Covenants--Limitation on Liens," "--Certain Covenants--Limitation
on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries" or "--Consolidation, Merger, Conveyance, Lease or Transfer";

(d) default in the performance, or breach, of any covenant or warranty
of the Company in the Indenture (other than a covenant or warranty addressed
in (a), (b) or (c) above) and continuance of

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such Default or breach for a period of 60 days after written notice thereof
has been given to the Company by the Trustee or to the Company and the
Trustee by Holders of at least 25% of the aggregate principal amount of the
outstanding Notes;

(e) (i) any payment of principal, and premium, if any, in excess of $5
million with respect to Indebtedness of the Company or any Restricted
Subsidiary is not paid when due within the applicable grace period, if any,
or (ii) Indebtedness of the Company or any Restricted Subsidiary is
accelerated by the holders thereof and the amount of principal and premium,
if any, of such accelerated Indebtedness exceeds $5 million;

(f) the entry by a court of competent jurisdiction of one or more final
judgments against the Company or any Restricted Subsidiary in an uninsured
and unindemnified aggregate amount in excess of $5 million which is not
discharged, waived, stayed, bonded or satisfied for a period of 45
consecutive days;

(g) the entry by a court having jurisdiction in the premises of (i) a
decree or order for relief in respect of the Company or any Restricted
Subsidiary in an involuntary case or proceeding under U.S. bankruptcy laws,
as now or hereafter constituted, or any other applicable Federal, state, or
foreign bankruptcy, insolvency, or other similar law or (ii) a decree or
order adjudging the Company or any Restricted Subsidiary a bankrupt or
insolvent, or approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company or
any Restricted Subsidiary under U.S. bankruptcy laws, as now or hereafter
constituted, or any other applicable Federal, state or foreign bankruptcy,
insolvency or similar law, or appointing a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar official of the Company or
any Restricted Subsidiary or of any substantial part of the Property or
assets of the Company or any Restricted Subsidiary, or ordering the winding
up or liquidation of the affairs of the Company or any Restricted
Subsidiary, and the continuance of any such decree or order for relief or
any such other decree or order unstayed and in effect for a period of 45
consecutive days; or

(h) (i) the commencement by the Company or any Restricted Subsidiary of
a voluntary case or proceeding under U.S. bankruptcy laws, as now or
hereafter constituted, or any other applicable Federal, state or foreign
bankruptcy, insolvency or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent; or (ii) the consent by
the Company or any Restricted Subsidiary to the entry of a decree or order
for relief in respect of the Company or any Restricted Subsidiary in an
involuntary case or proceeding under U.S. bankruptcy laws, as now or
hereafter constituted, or any other applicable Federal, state or foreign
bankruptcy, insolvency or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against the Company or any
Restricted Subsidiary; or (iii) the filing by the Company or any Restricted
Subsidiary of a petition or answer or consent seeking reorganization or
relief under U.S. bankruptcy laws, as now or hereafter constituted, or any
other applicable Federal, state or foreign bankruptcy, insolvency or other
similar law; or (iv) the consent by the Company or any Restricted Subsidiary
to the filing of such petition or to the appointment of or taking possession
by a custodian, receiver, liquidator, assignee, trustee, sequestrator or
similar official of the Company or any Restricted Subsidiary or of any
substantial part of the Property or assets of the Company or any Restricted
Subsidiary, or the making by the Company or any Restricted Subsidiary of an
assignment for the benefit of creditors; or (v) the admission by the Company
or any Restricted Subsidiary in writing of its inability to pay its debts
generally as they become due; or (vi) the taking of corporate action by the
Company or any Restricted Subsidiary in furtherance of any such action.

If any Event of Default (other than an Event of Default specified in clause
(g) or (h) above) occurs and is continuing, then and in every such case the
Trustee or the Holders of not less than 25% of the outstanding aggregate
principal amount of Notes may declare the Default Amount (as defined below) and
any accrued and unpaid interest on all Notes then outstanding to be immediately
due and payable by a

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notice in writing to the Company (and to the Trustee if given by Holders of the
Notes), and upon any such declaration, such Default Amount and any accrued
interest will become and be immediately due and payable. If any Event of Default
specified in clause (g) or (h) above occurs, the Default Amount and any accrued
and unpaid interest on the Notes then outstanding shall become immediately due
and payable without any declaration or other act on the part of the Trustee or
any Holder of Notes. Until the Full Accretion Date, the "Default Amount" shall
equal the Accreted Value of the Notes as of such date. On or after the Full
Accretion Date, the "Default Amount" shall equal 100% of the principal amount
thereof. Under certain circumstances, the Holders of a majority in principal
amount of the outstanding Notes by notice to the Company and the Trustee may
rescind an acceleration and its consequences.

In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to April
15, 2003 by reason of any willful action (or inaction) taken (or not taken) by
or on behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to such date, then the premium specified in the
Indenture shall also become immediately due and payable to the extent permitted
by law upon the acceleration of the Notes.

The Company will be required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required within 30
days after becoming aware of any Default or Event of Default, to deliver to the
Trustee a statement describing such Default or Event of Default, its status and
what action the Company is taking or proposes to take with respect thereto. The
Trustee may withhold from Holders of the Notes notice of any continuing Default
or Event of Default (other than relating to the payment of principal or
interest) if the Trustee determines that withholding such notice is in the
Holders' interest.

AMENDMENT, SUPPLEMENT AND WAIVER

The Company and the Trustee may, at any time and from time to time, without
notice to or consent of any Holder of Notes, enter into one or more indentures
supplemental to the Indenture (1) to evidence the succession of another Person
to the Company and the assumption by such successor of the covenants of the
Company in the Indenture and the Notes; (2) to add to the covenants of the
Company, for the benefit of the Holders, or to surrender any right or power
conferred upon the Company by the Indenture; (3) to add any additional Events of
Default; (4) to provide for uncertificated Notes in addition to or in place of
certificated Notes; (5) to evidence and provide for the acceptance of
appointment under the Indenture of a successor Trustee; (6) to secure the Notes;
(7) to cure any ambiguity in the Indenture, to correct or supplement any
provision in the Indenture which may be inconsistent with any other provision
therein or to add any other provisions with respect to matters or questions
arising under the Indenture; PROVIDED such actions shall not adversely affect
the interests of the Holders in any material respect; or (8) to comply with the
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the TIA

With the consent of the Holders of not less than a majority in principal
amount of the outstanding Notes, the Company and the Trustee may enter into one
or more indentures supplemental to the Indenture for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Indenture or modifying in any manner the rights of the Holders; provided
that no such supplemental indenture shall, without the consent of the Holder of
each outstanding Note: (1) change the Stated Maturity of the principal of, or
any installment of interest on, any Note, or alter the redemption provisions
thereof, or reduce the principal amount thereof (or premium, if any), or the
interest thereon that would be due and payable upon Maturity thereof, or change
the place of payment where, or the coin or currency in which, any Note or any
premium or interest thereon is payable, or impair the right to

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institute suit for the enforcement of any such payment on or after the maturity
thereof; (2) reduce the percentage in principal amount of the outstanding Notes,
the consent of whose Holders is necessary for any such supplemental indenture or
required for any waiver of compliance with certain provisions of the Indenture
or certain Defaults thereunder; (3) subordinate in right of payment, or
otherwise subordinate, the Notes to any other Indebtedness; (4) modify any
provision of the Indenture relating to the calculation of Accreted Value; or (5)
modify any provision described in this paragraph (except to increase any
percentage set forth herein).

The Holders of not less than a majority in principal amount of the
outstanding Notes may, on behalf of the Holders of all the Notes, waive any past
Default under the Indenture and its consequences, except a Default (1) in the
payment of the principal of (or premium, if any) or interest on any Note, or (2)
in respect of a covenant or provision hereof which under the proviso to the
prior paragraph cannot be modified or amended without the consent of the Holder
of each outstanding Note affected.

SATISFACTION AND DISCHARGE OF THE INDENTURE; DEFEASANCE

The Company may terminate its obligations under the Indenture when (i)
either (A) all outstanding Notes have been delivered to the Trustee for
cancellation or (B) all such Notes not theretofore delivered to the Trustee for
cancellation have become due and payable, will become due and payable within one
year or are to be called for redemption within one year under irrevocable
arrangements satisfactory to the Trustee for the giving of notice of redemption
by the Trustee in the name and at the expense of the Company, and the Company
has irrevocably deposited or caused to be deposited with the Trustee funds in an
amount sufficient to pay and discharge the entire indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of (or
premium, if any, on) and interest to the date of deposit or maturity or date of
redemption; (ii) the Company has paid or caused to be paid all sums payable by
the Company under the Indenture; and (iii) the Company has delivered an
Officers' Certificate and an Opinion of Counsel relating to compliance with the
conditions set forth in the Indenture.

The Company, at its election, shall (a) be deemed to have paid and
discharged its debt on the Notes and the Indenture shall cease to be of further
effect as to all outstanding Notes (except as to (i) rights of registration of
transfer, substitution and exchange of Notes and the Company's right of optional
redemption, (ii) rights of Holders to receive payments of principal of, premium,
if any, and interest on the Notes (but not the Change of Control Purchase Price
or the Offer Purchase Price) and any rights of the Holders with respect to such
amounts, (iii) the rights, obligations and immunities of the Trustee under the
Indenture and (iv) certain other specified provisions in the Indenture) or (b)
cease to be under any obligation to comply with certain restrictive covenants
including those described under "--Certain Covenants," after the irrevocable
deposit by the Company with the Trustee, in trust for the benefit of the
Holders, at any time prior to the maturity of the Notes, of (A) money in an
amount, (B) U.S. Government Obligations which through the payment of interest
and principal will provide, not later than one day before the due date of
payment in respect of the Notes, money in an amount, or (C) a combination
thereof, sufficient in the opinion of a nationally recognized firm of
independent public accountants, to pay and discharge the principal of, and
interest on, the Notes then outstanding on the dates on which any such payments
are due in accordance with the terms of the Indenture and of the Notes. Such
defeasance or covenant defeasance shall be deemed to occur only if certain
conditions are satisfied, including, among other things, delivery by the Company
to the Trustee of an opinion of counsel reasonably acceptable to the Trustee to
the effect that (i) such deposit, defeasance and discharge will not be deemed,
or result in, a taxable event for federal income tax purposes with respect to
the Holders; and (ii) the Company's deposit will not result in the Trust or the
Trustee being subject to regulation under the Investment Company Act of 1940.

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THE TRUSTEE

The Bank of New York is the Trustee under the Indenture.

The Holders of not less than a majority in principal amount of the
outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. Except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. The Indenture provides that in case an Event of Default shall
occur (which shall not be cured or waived), the Trustee will be required, in the
exercise of its rights and powers under the Indenture, to use the degree of care
of a prudent person in the conduct of such person's own affairs. Subject to such
provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any of the Holders of the
Notes, unless such Holders shall have offered to the Trustee indemnity
satisfactory to it against any loss, liability or expense.

NO PERSONAL LIABILITY OF CONTROLLING PERSONS, DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS

No controlling Person, director, officer, employee, incorporator or
stockholder of the Company, as such, shall have any liability for any covenant,
agreement or other obligations of the Company under the Notes or the Indenture
or for any claim based on, in respect of, or by reason of, such obligations or
their creation, solely by reason of its past, present or future status as a
controlling Person, director, officer, employee, incorporator or stockholder of
the Company. By accepting a Note each Holder waives and releases all such
liability (but only such liability). The waiver and release are part of the
consideration for issuance of the Notes. Nonetheless, such waiver may not be
effective to waive liabilities under the federal securities laws and it has been
the view of the Commission that such a waiver is against public policy.

CERTAIN DEFINITIONS

Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.

"ACCRETED VALUE" is defined to mean, for any date of calculation, the amount
calculated pursuant to (i), (ii), (iii) or (iv) for each $1,000 of principal
amount at maturity of Notes:

(i) if such date of calculation occurs on one or more of the following
dates (each a "Semi-Annual Accrual Date"), the Accreted Value will equal the
amount set forth below for such Semi-Annual Accrual Date:

<TABLE>
<CAPTION>
SEMI-ANNUAL ACCRETED
ACCRUAL DATE VALUE
- --------------------------------------------------------------------------------- ----------
<S> <C>
April 15, 1998................................................................... $ 532.73
October 15, 1998................................................................. 567.36
April 15, 1999................................................................... 604.24
October 15, 1999................................................................. 643.52
April 15, 2000................................................................... 685.34
October 15, 2000................................................................. 729.89
April 15, 2001................................................................... 777.34
October 15, 2001................................................................. 827.86
April 15, 2002................................................................... 881.67
October 15, 2002................................................................. 938.98
April 15, 2003................................................................... 1,000.00
</TABLE>

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(ii) if such date of calculation occurs before the first Semi-Annual
Accrual Date, the Accreted Value will equal the sum of (a) $532.35 and (b)
an amount equal to the product of (1) the Accreted Value for the first
Semi-Annual Accrual Date less $532.35 MULTIPLIED by (2) a fraction, the
numerator of which is the number of days from the Issue Date to such date of
calculation, using a 360-day year of twelve 30-day months, and the
denominator of which is the number of days elapsed from the Issue Date to
the first Semi-Annual Accrual Date, using a 360-day year of twelve 30-day
months;

(iii) if such date of calculation occurs between two Semi-Annual Accrual
Dates, the Accreted Value will equal the sum of (a) the Accreted Value of
Semi-Annual Accrual Date immediately preceding such date of calculation and
(b) an amount equal to the product of (1) the Accreted Value for the
immediately following Semi-Annual Accrual Date less the Accreted Value for
the immediately preceding Semi-Annual Accrual Date multiplied by (2) a
fraction, the numerator of which is the number of days from the immediately
preceding Semi-Annual Accrual Date to such date of calculation, using a
360-day year of twelve 30-day months, and the denominator of which is 180;
or

(iv) if such date of calculation occurs after the last Semi-Annual
Accrual Date, the Accreted Value will equal $1,000.

"ACQUIRED INDEBTEDNESS" means, with respect to any specified Person,
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Subsidiary of such specified Person, but excluding
Indebtedness which is extinguished, retired or repaid in connection with such
other Person merging with or into or becoming a Subsidiary of such specified
Person.

"AFFILIATE" means, as to any Person, any other Person which directly or
indirectly controls, or is under common control with, or is controlled by, such
Person. For purposes of this definition, "control" (including, with correlative
meanings, the terms "controlling," "under common control with" and "controlled
by"), as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of Voting Stock, by
agreement or otherwise; PROVIDED, that Beneficial Ownership of 10% or more of
the Voting Stock of a Person shall be deemed to be control.

"ASSET SALE" by any Person means any transfer, conveyance, sale, lease or
other disposition by such Person or any of its Restricted Subsidiaries
(including a consolidation or merger or other sale of any such Restricted
Subsidiary with, into or to another Person in a transaction in which such
Restricted Subsidiary ceases to be a Restricted Subsidiary of the specified
Person, but excluding a disposition by a Restricted Subsidiary of such Person to
such Person or a Restricted Subsidiary of such Person or by such Person to a
Restricted Subsidiary of such Person) of (i) shares of Capital Stock or other
ownership interests of a Restricted Subsidiary of such Person, (ii)
substantially all of the assets of such Person or any of its Restricted
Subsidiaries representing a division or line of business (other than as part of
a Permitted Investment) or (iii) other assets or rights of such Person or any of
its Restricted Subsidiaries outside of the ordinary course of business and, in
each case, that is not governed by the provisions of the Indenture applicable to
consolidations, mergers, and transfers of all or substantially all of the assets
of the Company; PROVIDED that "Asset Sale" shall not include (i) sales or other
dispositions of inventory, receivables and other current assets in the ordinary
course of business, (ii) simultaneous exchanges by the Company or any Restricted
Subsidiary of Telecommunications Assets for other Telecommunications Assets in
the ordinary course of business; PROVIDED that the applicable Telecommunications
Assets received by the Company or such Restricted Subsidiary have at least
substantially equal Fair Market Value to the Company or such Restricted
Subsidiary (as determined by the Board of Directors whose good faith
determination shall be conclusive and evidenced by a Board Resolution filed with
the Trustee), (iii) disposals or replacements of obsolete, uneconomical,
negligible, worn-out or surplus property in the ordinary course of business;
(iv) sales or other dispositions of assets in a single or series of related
transactions with a Fair Market Value or net proceeds (as certified in an
Officers' Certificate) not in excess of $2 million; (v) a Restricted

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Payment that is permitted by the covenant described under "--Certain
Covenants--Limitation on Restricted Payments"; or (vi) a conveyance constituting
or pursuant to a Permitted Lien.

"ATTRIBUTABLE INDEBTEDNESS" means, with respect to any Sale and Leaseback
Transaction of any Person, as at the time of determination, the greater of (i)
the capitalized amount in respect of such transaction that would appear on the
balance sheet of such Person in accordance with GAAP and (ii) the present value
(discounted at a rate consistent with accounting guidelines, as determined in
good faith by the responsible accounting officer of such Person) of the payments
during the remaining term of the lease (including any period for which such
lease has been extended or may, at the option of the lessor, be extended) or
until the earliest date on which the lessee may terminate such lease without
penalty or upon payment of a penalty (in which case the rental payments shall
include such penalty).

"AVERAGE LIFE" means, as of any date, with respect to any debt security or
Disqualified Stock, the quotient obtained by dividing (i) the sum of the
products of (x) the number of years from such date to the dates of each
scheduled principal payment or redemption payment (including any sinking fund or
mandatory redemption payment requirements) of such debt security or Disqualified
Stock multiplied in each case by (y) the amount of such principal or redemption
payment, by (ii) the sum of all such principal or redemption payments.

"BENEFICIAL OWNER" means a beneficial owner as defined in Rules 13d-3 and
13d-5 under the Exchange Act (or any successor rules), including the provision
of such Rules that a Person shall be deemed to have beneficial ownership of all
securities that such Person has a right to acquire within 60 days; provided that
a Person will not be deemed a beneficial owner of, or to own beneficially, any
securities if such beneficial ownership (1) arises solely as a result of a
revocable proxy delivered in response to a proxy or consent solicitation made
pursuant to, and in accordance with, the Exchange Act and (2) is not also then
reportable on Schedule 13D or Schedule 13G (or any successor schedule) under the
Exchange Act.

"BOARD OF DIRECTORS" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of the Board of Directors.

"BOARD RESOLUTION" means a duly adopted resolution of the Board of Directors
in full force and effect at the time of determination.

"CAPITAL LEASE OBLIGATION" of any Person means the obligation to pay rent or
other payment amounts under a lease of (or other Indebtedness arrangement
conveying the right to use) real or personal property of such Person which is
required to be classified and accounted for as a capital lease or a liability on
the face of a balance sheet of such Person prepared in accordance with GAAP, and
the stated maturity thereof shall be the date of the last payment of rent or any
amount due under such lease prior to the first date upon which such lease may be
terminated by the lessee without payment of a penalty.

"CAPITAL STOCK" in any Person means any and all shares, interests,
participations or other equivalents in the equity interest (however designated)
in such Person and any rights (other than Indebtedness convertible into an
equity interest), warrants or options to subscribe for or acquire an equity
interest in such Person.

"CASH EQUIVALENTS" means (i) United States dollars, (ii) securities issued
or directly and fully Guaranteed or insured by the United States government or
any agency or instrumentality thereof (provided that the full faith and credit
of the United States is pledged in support thereof) having maturities of not
more than six months from the date of acquisition, (iii) certificates of deposit
and eurodollar time deposits with maturities of six months or less from the date
of acquisition, bankers acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any domestic commercial bank having
capital and surplus in excess of $500 million and ratings of "A" or better from
Moody's Investor's Service, Inc. ("Moody's") and Standard & Poor's Rating
Services ("S&P"), (iv) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clauses (ii) and (iii)
above entered into with any financial institution meeting the qualifications

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specified in clause (iii) above, (v) commercial paper having A-2; P-2 ratings
obtainable from Moody's or S&P and in each case maturing within six months after
the date of acquisition and (vi) money market and mutual funds at least 95% of
the assets of which constitute Cash Equivalents of the kinds described in
clauses (i)-(v) of this definition.

"CHANGE OF CONTROL" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition, in one or a series of
related transactions, of all or substantially all of the assets of the Company
and its Restricted Subsidiaries, taken as a whole, to any Person or group (as
such term is used in Section 13(d)(3) and 14(d)(2) of the Exchange Act), (ii)
the adoption of a plan relating to the liquidation or dissolution of the
Company, (iii) any Person or group (as defined above) other than the Permitted
Holders is or becomes the Beneficial Owner, directly or indirectly, of more than
35% of the total Voting Stock or Total Common Equity of the Company, including
by way of merger, consolidation or otherwise or (iv) the first day on which a
majority of the members of the Board of Directors of the Company are not
Continuing Directors.

"CLOSING DATE" means April 13, 1998, the date on which Private Notes were
issued by the Company.

"CLOSING PRICE" on any Trading Day with respect to the per share price of
any shares of Capital Stock means the last reported sale price regular way or,
in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices regular way, in either case on the New
York Stock Exchange or, if such shares of Capital Stock are not listed or
admitted to trading on such exchange, on the principal national securities
exchange on which such shares are listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, on the Nasdaq
National Market or, if such shares are not listed or admitted to trading on any
national securities exchange or quoted on Nasdaq National Market but the issuer
is a Foreign Issuer (as defined in Rule 3b-4(b) under the Exchange Act) and the
principal securities exchange on which such shares are listed or admitted to
trading is a Designated Offshore Securities Market (as defined in Rule 902(a)
under the Securities Act), the average of the reported closing bid and asked
prices regular way on such principal exchange, or, if such shares are not listed
or admitted to trading on any national securities exchange or quoted on Nasdaq
National Market and the issuer and principal securities exchange do not meet
such requirements, the average of the closing bid and asked prices in the
over-the-counter market as furnished by any New York Stock Exchange member firm
that is selected from time to time by the Company for that purpose and is
reasonably acceptable to the Trustee.

"COMMON STOCK" means Capital Stock other than Preferred Stock.

"COMMISSION" means the Securities and Exchange Commission, as from time to
time constituted.

"CONSOLIDATED CASH FLOW AVAILABLE FOR FIXED CHARGES" for any period means
the Consolidated Net Income of the Company and its Restricted Subsidiaries for
such period increased by the sum of (i) Consolidated Interest Expense of the
Company and its Restricted Subsidiaries for such period, plus (ii) Consolidated
Income Tax Expense of the Company and its Restricted Subsidiaries for such
period, plus (iii) the consolidated depreciation and amortization expense
included in the income statement of the Company and its Restricted Subsidiaries
for such period, plus (iv) any non-cash expense related to the issuance to
employees of the Company or any Restricted Subsidiary of the Company of options
to purchase Capital Stock of the Company or such Restricted Subsidiary, plus (v)
any non-cash expense related to a purchase accounting adjustment not requiring
an accrual or reserve and separately disclosed in the Company's income
statement, and decreased by the amount of any non-cash item that increases such
Consolidated Net Income, all as determined on a consolidated basis in accordance
with GAAP; PROVIDED that there shall be excluded therefrom the Consolidated Cash
Flow Available for Fixed Charges (if positive) of any Restricted Subsidiary of
the Company (calculated separately for such Restricted Subsidiary in the same
manner as provided above for the Company) that is subject to a restriction which
prevents the payment of dividends or the making of distributions to the Company
or another Restricted Subsidiary of the Company to the extent of such
restriction.

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"CONSOLIDATED INCOME TAX EXPENSE" for any period means the aggregate amounts
of the provisions for income taxes of the Company and its Restricted
Subsidiaries for such period calculated on a consolidated basis in accordance
with GAAP.

"CONSOLIDATED INTEREST EXPENSE" means for any period the interest expense
included in a consolidated income statement (excluding interest income) of the
Company and its Restricted Subsidiaries for such period in accordance with GAAP,
including without limitation or duplication (or, to the extent not so included,
with the addition of), (i) the amortization of original issue discount on any
Indebtedness and the interest portion of any deferred payment obligation
calculated in accordance with the effective interest method of accounting; (ii)
any payments or fees with respect to letters of credit, bankers' acceptances or
similar facilities; (iii) fees with respect to interest rate swap or similar
agreements or foreign currency hedge, exchange or similar agreements: (iv)
Preferred Stock dividends of the Company and its Restricted Subsidiaries (other
than dividends paid in shares of Preferred Stock that is not Disqualified Stock)
declared and paid or payable; (v) accrued Disqualified Stock dividends of the
Company and its Restricted Subsidiaries, whether or not declared or paid; (vi)
interest on Indebtedness Guaranteed by the Company and its Restricted
Subsidiaries: and (vii) the portion of any Capital Lease Obligation paid during
such period that is allocable to interest expense in accordance with GAAP.

"CONSOLIDATED NET INCOME" of any Person means, for any period, the aggregate
net income (or net loss) of such Person and its Restricted Subsidiaries for such
period on a consolidated basis determined in accordance with GAAP; PROVIDED that
there shall be excluded therefrom, without duplication (i) all items classified
as extraordinary, (ii) any net income (or net loss) of any Person other than
such Person and its Restricted Subsidiaries, except to the extent of the amount
of dividends or other distributions actually paid to such Person or its
Restricted Subsidiaries by such other Person during such period, (iii) the net
income of any Person acquired by such Person or any of its Restricted
Subsidiaries in a pooling-of-interests transaction for any period prior to the
date of the related acquisition, (iv) any gain or loss, net of taxes, realized
on the termination of any employee pension benefit plan, (v) net gains (or net
losses) in respect of Asset Sales by such Person or its Restricted Subsidiaries,
(vi) the net income (or net loss) of any Restricted Subsidiary of such Person to
the extent that the payment of dividends or other distributions to such Person
is restricted by the terms of its charter or any agreement, instrument,
contract, judgment, order, decree, statute, rule, governmental regulation or
otherwise, except for any dividends or distributions actually paid by such
Restricted Subsidiary to such Person, and (vii) the cumulative effect of changes
in accounting principles.

"CONSOLIDATED NET WORTH" of any Person means, at any date of determination,
the consolidated stockholders' equity or partners' capital (excluding
Disqualified Stock) of such Person and its Subsidiaries, as determined in
accordance with GAAP.

"CONTINUING DIRECTORS" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of issuance or (ii) was nominated for election to such
Board of Directors with the affirmative vote of a majority of the Continuing
Directors who were members of such Board at the time of such nomination or
election or who was elected or appointed in the ordinary course by Continuing
Directors or other directors so elected or appointed.

"DEFAULT" means any event, act or condition, the occurrence of which is, or
after notice or the passage of time would be, an Event of Default.

"DISQUALIFIED STOCK" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, or otherwise, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, or is exchangeable for
Indebtedness at any time, in whole or in part, on or prior to the Stated
Maturity of the Notes.

"ENRON" means Enron Capital & Trade Resources Corp.

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"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).

"EXISTING INDEBTEDNESS" means Indebtedness outstanding on the date of the
Indenture (other than under any Senior Credit Facility).

"EQUITY COMMITMENT" means the investment in the Company by Spectra 3 and
Enron, no later than the closing of the Offering, of an additional $20 million
pursuant to the SpectraNet International Common Stock Purchase Agreement dated
as of December 30, 1997, as amended, among the Company, Enron and Spectra 3.

"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended (or any
successor act), and the rules and regulations thereunder.

"FAIR MARKET VALUE" means, with respect to any asset or Property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy, as determined in good faith by the Board of
Directors.

"FULL ACCRETION DATE" means April 15, 2003.

"GAAP" means United States generally accepted accounting principles,
consistently applied, as set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board, or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession of the United
States, that are applicable to the circumstances as of the date of
determination; provided that, except as otherwise specifically provided, all
calculations made for purposes of determining compliance with the terms of the
provisions of the Indenture shall utilize GAAP as in effect on the Issue Date.

"GUARANTEE" means any direct or indirect obligation, contingent or
otherwise, of a Person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other Person in any manner (and
"Guaranteed," "Guaranteeing" and "Guarantor" shall have meanings correlative to
the foregoing).

"HOLDER" means (i) in the case of any Note that is a Certificated Security,
the Person in whose name such Note is registered in the Note Register and (ii)
in the case of any Note that is a Global Security, the Depositary.

"INCUR" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable in respect of such Indebtedness or other
obligation including by acquisition of Subsidiaries or the recording, as
required pursuant to GAAP or otherwise, of any such Indebtedness or other
obligation on the balance sheet of such Person (and "Incurrence," "Incurred,"
"Incurrable" and "Incurring" shall have meanings correlative to the foregoing);
provided that a change in GAAP that results in an obligation of such Person that
exists at such time becoming Indebtedness shall not be deemed an Incurrence of
such Indebtedness and that neither the accrual of interest nor the accretion of
original issue discount shall be deemed an Incurrence of Indebtedness.
Indebtedness otherwise incurred by a Person before it becomes a Subsidiary of
the Company (whether by merger, consolidation, acquisition or otherwise) shall
be deemed to have been Incurred at the time at which such Person becomes a
Subsidiary of the Company.

"INDEBTEDNESS" means, at any time (without duplication), with respect to any
Person, whether recourse is to all or a portion of the assets of such Person,
and whether or not contingent, (i) any obligation of such Person for money
borrowed, (ii) any obligation of such Person evidenced by bonds, debentures,
notes, Guarantees or other similar instruments, including, without limitation,
any such obligations Incurred in connection with the acquisition of Property,
assets or businesses, excluding trade accounts payable made in the ordinary
course of business, (iii) any reimbursement obligation of such Person with
respect to letters of

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credit, bankers' acceptances or similar facilities issued for the account of
such Person, (iv) any obligation of such Person issued or assumed as the
deferred purchase price of Property or services (but excluding trade accounts
payable or accrued liabilities arising in the ordinary course of business, which
in either case are not more than 60 days overdue or which are being contested in
good faith), (v) any Capital Lease Obligation of such Person, (vi) the maximum
fixed redemption or repurchase price of Disqualified Stock of such Person and,
to the extent held by Persons other than such Person or its Restricted
Subsidiaries, the maximum fixed redemption or repurchase price of Disqualified
Stock of such Person's Restricted Subsidiaries, at the time of determination,
(vii) every obligation under Interest Rate Protection Agreements of such Person,
(viii) any Attributable Indebtedness with respect to any Sale and Leaseback
Transaction to which such Person is a party, (ix) to the extent held by Persons
other than such Person or its Restricted Subsidiaries, the liquidation value of
any Preferred Stock issued by Restricted Subsidiaries of such Person, plus
accrued and unpaid dividends, and (x) any obligation of the type referred to in
clauses (i) through (ix) of this definition of another Person and all dividends
and distributions of another Person the payment of which, in either case, such
Person has Guaranteed or is responsible or liable, directly or indirectly, as
obligor, Guarantor or otherwise. For purposes of the preceding sentence, the
maximum fixed repurchase price of any Disqualified Stock that does not have a
fixed repurchase price shall be calculated in accordance with the terms of such
Disqualified Stock as if such Disqualified Stock were repurchased on any date on
which Indebtedness shall be required to be determined pursuant to the Indenture;
PROVIDED that, if such Disqualified Stock is not then permitted to be
repurchased, the repurchase price shall be the book value of such Disqualified
Stock. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and, with respect to contingent obligations, the maximum liability upon
the occurrence of the contingency giving rise to the obligation; PROVIDED that
the amount outstanding at any time of any Indebtedness issued with original
issue discount (including, without limitation, the Notes) is the face amount of
such Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at such time as determined in conformity with
GAAP.

"INTEREST RATE PROTECTION AGREEMENT" of any Person means any forward
contract, futures contract, swap, option, future option or other financial
agreement or arrangement (including, without limitation, caps, floors, collars
and similar agreements) relating to, or the value of which is dependent upon,
interest rates.

"INVESTMENT" in any Person means any direct, indirect or contingent (i)
advance or loan to, Guarantee of any Indebtedness of, extension of credit or
capital contribution to such Person, (ii) the acquisition of any shares of
Capital Stock, bonds, notes, debentures or other securities of such Person, or
(iii) the acquisition, by purchase or otherwise, of all or substantially all of
the business, assets or stock or other evidence of beneficial ownership of such
Person; PROVIDED that Investments shall exclude commercially reasonable
extensions of trade credit. The amount of any Investment shall be the original
cost of such Investment, PLUS the cost of all additions thereto and minus the
amount of any portion of such Investment repaid to such Person in cash as a
repayment of principal or a return of capital, as the case may be, up to the
total amount of such Investment, but without any other adjustments for increases
or decreases in value, or write-ups, write-downs or write-offs with respect to
such Investment. In determining the amount of any Investment involving a
transfer of any Property other than cash, such Property shall be valued at its
Fair Market Value at the time of such transfer.

"ISSUE DATE" means April 13, 1998, the date on which the Private Notes were
first authenticated and delivered under the Indenture.

"LIEN" means, with respect to any Property or other asset, any mortgage or
deed of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien (statutory or other), charge, easement, encumbrance, preference,
priority or other security or similar agreement or preferential arrangement of
any kind or nature whatsoever on or with respect to such Property or other asset
(including, without limitation, any conditional sale or title retention
agreement having substantially the same economic effect as any of the
foregoing).

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"MATURITY" means, when used with respect to a Note, the date on which the
principal of such Note becomes due and payable as provided therein or in the
Indenture, whether on the date specified in such Note as the fixed date on which
the principal of such Note is due and payable, on the Change of Control Payment
Date or purchase date established pursuant to the terms of the Indenture with
regard to a Change of Control Offer or an Asset Sale Offer, as applicable, or by
declaration of acceleration, call for redemption or otherwise.

"NET CASH PROCEEDS" means, with respect to the sale of any Property or
assets by any Person or any of its Restricted Subsidiaries, cash or readily
marketable cash equivalents received net of (i) all reasonable out-of-pocket
expenses of such Person or such Restricted Subsidiary Incurred in connection
with such sale, including, without limitation, all legal, title and recording
tax expenses, commissions and other fees and expenses Incurred (but excluding
any finder's fee or broker's fee payable to any Affiliate of such Person) and
all federal, state, foreign and local taxes arising in connection with such sale
that are paid or required to be accrued as a liability under GAAP by such Person
or its Restricted Subsidiaries, (ii) all payments made or required to be made by
such Person or its Restricted Subsidiaries on any Indebtedness which is secured
by such Properties or other assets in accordance with the terms of any Lien upon
or with respect to such Properties or other assets or which must, by the terms
of such Lien, or in order to obtain a necessary consent to such transaction or
by applicable law, be repaid in connection with such sale, (iii) all
contractually required distributions and other payments made to minority
interest holders (but excluding distributions and payments to Affiliates of such
Person) in Restricted Subsidiaries of such Person as a result of such
transaction and (iv) appropriate amounts to be provided by such Person or any
Restricted Subsidiary thereof, as the case may be, as a reserve in accordance
with GAAP against any liabilities associated with such assets and retained by
such Person or any Restricted Subsidiary thereof, as the case may be, after such
transaction, including, without limitation, liabilities under any
indemnification obligations and severance and other employee termination costs
associated with such transaction, in each case as determined by the Board of
Directors of such Person, in its reasonable good faith judgment evidenced by a
resolution of the Board of Directors filed with the Trustee; PROVIDED that, in
the event that any consideration for a transaction (which would otherwise
constitute Net Cash Proceeds) is required to be held in escrow pending
determination of whether a purchase price adjustment will be made, such
consideration (or any portion thereof) shall become Net Cash Proceeds only at
such time as it is released to such Person or its Restricted Subsidiaries from
escrow; and PROVIDED, FURTHER, that any non-cash consideration received in
connection with any transaction, which is subsequently converted to cash, shall
be deemed to be Net Cash Proceeds at such time, and shall thereafter be applied
in accordance with the Indenture.

"OFFICERS' CERTIFICATE" means a certificate signed by (i) the Chairman of
the Board, a Vice Chairman of the Board, the President, the Chief Executive
Officer or a Vice President, and (ii) the Chief Financial Officer, the Chief
Accounting Officer, the Treasurer, an Assistant Treasurer, the Secretary or an
Assistant Secretary of the Company and delivered to the Trustee, which shall
comply with the Indenture.

"OPINION OF COUNSEL" shall mean a written opinion of counsel, who may be
counsel to the Company and who shall be satisfactory to the Trustee.

"PARI PASSU INDEBTEDNESS" means (i) any Indebtedness of the Company that is
PARI PASSU in right of payment to the Notes and (ii) with respect to any
Guarantee, Indebtedness which ranks PARI PASSU in right of payment to such
Guarantee.

"PERMITTED HOLDERS" means Donald L. Sturm, Spectra 1, Spectra 2, Spectra 3,
Enron and their respective Affiliates (other than the Company and its Restricted
Subsidiaries) and any relative in the immediate family of Donald L. Sturm (or
any entity all of the benefit ownership interest of which are owned by such a
relative) to whom membership interests in Spectra 1, Spectra 2 or Spectra 3 are
distributed upon the death of Donald L. Sturm.

"PERMITTED INTEREST RATE PROTECTION AGREEMENT" of any Person means any
Interest Rate Protection Agreement entered into with one or more financial
institutions in the ordinary course of business that is

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designed to protect such Person against fluctuations in interest rates with
respect to Indebtedness Incurred and which shall have a notional amount no
greater than the payments due with respect to the Indebtedness being hedged
thereby and not for purposes of speculation.

"PERMITTED INVESTMENT" means (i) Cash Equivalents; (ii) Investments in
Property used in the ordinary course of business; (iii) Investments in any
Person as a result of which such Person becomes (or, in the case of the
acquisition of all or substantially all of a Person's assets, such assets are
acquired by) a Restricted Subsidiary in compliance with the Indenture; (iv)
Investments in prepaid expenses, negotiable instruments held for collection and
lease, utility and workers' compensation, performance and other similar
deposits; (v) Permitted Interest Rate Protection Agreements with respect to any
floating rate Indebtedness that is permitted by the terms of the Indenture to be
outstanding; (vi) bonds, notes, debentures or other debt securities received as
a result of Asset Sales permitted under the covenant described under "--Asset
Sales"; (vii) Investments in existence at the Issue Date; (viii) commission,
payroll, travel and similar advances to employees in the ordinary course of
business to cover matters that are expected at the time of such advances
ultimately to be treated as expenses in accordance with GAAP; and (ix) stock,
obligations or securities received in satisfaction of judgments.

"PERMITTED JOINT VENTURE" means an Investment in a Person who is not a
Restricted Subsidiary and who is engaged in the Telecommunications Business.

"PERMITTED LIENS" means (i) Liens existing on the date of the Indenture and
securing Indebtedness outstanding on the date of the Indenture or Incurred on or
after the Issue Date pursuant to any Senior Credit Facility; (ii) Liens in favor
of the Company or any Restricted Subsidiary of the Company; (iii) Liens on
Property of the Company or a Restricted Subsidiary acquired, constructed or
constituting improvements made after the Issue Date of the Notes to secure
Purchase Money Indebtedness or Vendor Financing Indebtedness which is otherwise
permitted under the Indenture, PROVIDED that (a) the principal amount of any
Indebtedness secured by any such Lien does not exceed 100% of such purchase
price or cost of construction or improvement of the Property subject to such
Lien, (b) such Lien attaches to such property prior to, at the time of or within
180 days after the acquisition, completion of construction or commencement of
operation of such Property and (c) such Lien does not extend to or cover any
Property other than the specific item of Property (or portion thereof) acquired,
constructed or constituting the improvements made with the proceeds of such
Purchase Money Indebtedness or Vendor Financing Indebtedness; (iv) Liens to
secure Acquired Indebtedness, provided that (a) such Lien attaches to the
acquired asset prior to the time of the acquisition of such asset, (b) such Lien
does not extend to or cover any other Property and (c) such Lien was not
Incurred in contemplation of such acquisition; (v) Liens to secure Indebtedness
Incurred to extend, renew, refinance or refund (or successive extensions,
renewals, refinancings or refundings), in whole or in part, Indebtedness secured
by any Lien referred to in the foregoing clauses (i), (iii) and (iv) so long as
such Lien does not extend to any other Property and the principal amount of
Indebtedness so secured is not increased except as otherwise permitted under
clause (iv) of the second paragraph of "--Certain Covenants--Limitation on
Consolidated Indebtedness"; (vi) Liens for taxes, assessments, governmental
charges or claims which are not yet delinquent or which are being contested in
good faith by appropriate proceedings, if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made therefor; (vii) other Liens incidental to the conduct of the Company's and
its Restricted Subsidiaries' business or the ownership of its property and
assets not securing any Indebtedness, and which do not in the aggregate
materially detract from the value of the Company's and its Restricted
Subsidiaries' property or assets when taken as a whole, or materially impair the
use thereof in the operation of its business; (viii) pledges and deposits made
in the ordinary course of business in connection with workers' compensation and
unemployment insurance, statutory Liens of landlords, carriers, warehousemen,
mechanics, materialmen, repairmen and other types of statutory obligations; (ix)
deposits made to secure the performance of tenders, bids, leases, and other
obligations of like nature Incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money); (x) zoning
restrictions, servitudes, easements, rights-of-way, restrictions and

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other similar charges or encumbrances Incurred in the ordinary course of
business which, in the aggregate, do not materially detract from the value of
the property subject thereto or interfere with the ordinary conduct of the
business of the Company or its Restricted Subsidiaries; (xi) Liens arising out
of judgments or awards against the Company or any Restricted Subsidiary with
respect to which the Company or such Restricted Subsidiary is prosecuting an
appeal or proceeding for review and the Company or such Restricted Subsidiary is
maintaining adequate reserves in accordance with GAAP; (xii) any interest or
title of a lessor in the property subject to any lease other than a capital
lease; (xiii) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Company and its Restricted
Subsidiaries; (xiv) Liens encumbering property or assets under construction
arising from progress or partial payments by a customer of the Company or its
Restricted Subsidiaries relating to such property or assets; (xv) Liens arising
from filing precautionary Uniform Commercial Code financing statements regarding
leases; (xvi) Liens on property of, or on shares of stock or Indebtedness of,
any corporation existing at the time such corporation becomes, or becomes a part
of, any Restricted Subsidiary; PROVIDED that such Liens do not extend to or
cover any property or assets of the Company or any Restricted Subsidiary other
than the property or assets acquired and PROVIDED, FURTHER, that such Liens were
not Incurred in contemplation of such transaction; (xvii) Liens securing
reimbursement obligations with respect to letters of credit that encumber
documents and other property relating to such letters of credit and the products
and proceeds thereof; (xviii) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customs duties in connection
with the importation of goods; (xix) Liens encumbering customary initial
deposits and margin deposits, and other Liens that are either within the general
parameters customary in the industry and Incurred in the ordinary course of
business, in each case, securing Indebtedness under Permitted Interest Rate
Protection Agreements; and (xx) Liens arising out of conditional sale, title
retention, consignment or similar arrangements for the sale of goods entered
into by the Company or any of its Restricted Subsidiaries in the ordinary course
of business in accordance with the past practices of the Company and its
Restricted Subsidiaries prior to the Issue Date.

"PERSON" means any individual, corporation, limited liability company,
partnership, limited liability partnership, joint venture, trust, unincorporated
organization or government or any agency or political subdivision thereof.

"PREFERRED STOCK" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person, to shares of Capital
Stock of any other class of such Person.

"PROPERTY" means, with respect to any Person, any interest of such Person in
any kind of property or asset, whether real, personal or mixed, or tangible or
intangible, excluding Capital Stock in any other Person.

"PUBLIC EQUITY OFFERING" means an underwritten offering of Common Stock with
gross proceeds to the Company of at least $25.0 million pursuant to a
registration statement that has been declared effective by the Commission
pursuant to the Securities Act (other than a registration statement on Form S-8
or otherwise relating to equity securities issuable under any employee benefit
plan of the Company).

"PURCHASE MONEY INDEBTEDNESS" means Indebtedness of the Company or any
Restricted Subsidiary (including Acquired Indebtedness and Capital Lease
Obligations, mortgage financings and purchase money obligations) Incurred for
the purpose of financing all or any part of the cost of construction,
acquisition, development or improvement by the Company or any Restricted
Subsidiary of any Telecommunications Assets of the Company or any Restricted
Subsidiary and including any related notes, Guarantees, collateral documents,
instruments and agreements executed in connection therewith, as the same may be
amended, supplemented, modified or restated from time to time.

"QUALIFIED STOCK" of any Person means a class of Capital Stock other than
Disqualified Stock.

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"REGISTERED EXCHANGE OFFER" shall have the meaning set forth under "Exchange
Offer; Registration Rights."

"RESTRICTED PAYMENT" means (i) a dividend or other distribution declared or
paid on the Capital Stock of the Company or to the Company's stockholders (in
their capacity as such), or declared or paid to any Person other than the
Company or a Restricted Subsidiary of the Company on the Capital Stock of any
Restricted Subsidiary of the Company, in each case, other than dividends,
distributions or payments made solely in Qualified Stock of the Company or such
Restricted Subsidiary, (ii) a payment made by the Company or any of its
Restricted Subsidiaries (other than to the Company or any Restricted Subsidiary)
to purchase, redeem, acquire or retire any Capital Stock of the Company or of a
Restricted Subsidiary, (iii) a payment made by the Company or any of its
Restricted Subsidiaries to redeem, repurchase, defease (including an
in-substance or legal defeasance) or otherwise acquire or retire for value
(including pursuant to mandatory repurchase covenants), prior to any scheduled
maturity, scheduled sinking fund or mandatory redemption payment, Indebtedness
of the Company or such Restricted Subsidiary which is subordinate (whether
pursuant to its terms or by operation of law) in right of payment to the Notes
and which was scheduled to mature on or after the maturity of the Notes or (iv)
an Investment in any Person, including an Unrestricted Subsidiary or the
designation of a Subsidiary as an Unrestricted Subsidiary, other than (a) a
Permitted Investment, (b) an Investment by the Company in a Restricted
Subsidiary or (c) an Investment by a Restricted Subsidiary in the Company or a
Restricted Subsidiary of the Company.

"RESTRICTED SUBSIDIARY" means any Wholly-Owned Subsidiary of the Company
that has not been designated as an "Unrestricted Subsidiary."

"SALE AND LEASEBACK TRANSACTION" means, with respect to any Person, any
direct or indirect arrangement pursuant to which Property is sold or transferred
by such Person or a Restricted Subsidiary of such Person and is thereafter
leased back from the purchaser or transferee thereof by such Person or one of
its Restricted Subsidiaries.

"SENIOR CREDIT FACILITY" means Indebtedness of the Company and its
Subsidiaries Incurred from time to time pursuant to one or more credit
agreements or similar facilities made available from time to time to the Company
and its Subsidiaries, whether or not secured, and including any related notes,
Guarantees, collateral documents, instruments and agreements executed in
connection therewith, as the same may be amended, supplemented, modified or
restated from time to time.

"SPECTRA 1" means Colorado Spectra 1, LLC and any member as of the Issue
Date of Colorado Spectra 1, LLC, and any relative in the immediate family of
Donald L. Sturm (or any entity all of the beneficial ownership interests of
which are owned by such a relative) to whom assets of Colorado Spectra 1, LLC
are distributed following a dissolution of Colorado Spectra 1, LLC due to the
death of Donald L. Sturm.

"SPECTRA 2" means Colorado Spectra 2, LLC and any member as of the Issue
Date of Colorado Spectra 2, LLC, and any relative in the immediate family of
Donald L. Sturm (or any entity all of the beneficial ownership interests of
which are owned by such a relative) to whom assets of Colorado Spectra 2, LLC
are distributed following a dissolution of Colorado Spectra 2, LLC due to the
death of Donald L. Sturm.

"SPECTRA 3" means Colorado Spectra 3, LLC and any member as of the Issue
Date of Colorado Spectra 3, LLC, and any relative in the immediate family of
Donald L. Sturm (or any entity all of the beneficial ownership interests of
which are owned by such a relative) to whom assets of Colorado Spectra 3, LLC
are distributed following a dissolution of Colorado Spectra 3, LLC due to the
death of Donald L. Sturm.

"STATED MATURITY" means, with respect to any installment of interest or
principal on any series of related Indebtedness, the date on which such payment
of interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations

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to repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.

"STRATEGIC EQUITY INVESTMENT" means an equity investment made by a Strategic
Investor in the Company in an aggregate amount of not less than $25 million.

"STRATEGIC INVESTOR" means a Person (other than the Permitted Holders)
engaged in one or more Telecommunications Businesses that has, or 80% or more of
the Voting Stock of which is owned by a Person that has, an equity market
capitalization at the time of its initial investment in the Company in excess of
$1 billion.

"SUBORDINATED INDEBTEDNESS" means Indebtedness of the Company as to which
the payment of principal of (and premium, if any) and interest and other payment
obligations in respect of such Indebtedness shall be subordinate to the prior
payment in full of the Notes to at least the following extent: (i) no payments
of principal of (or premium, if any) or interest on or otherwise due in respect
of such Indebtedness may be permitted for so long as any default in the payment
of principal (or premium, if any) or interest on the Notes exists; (ii) in the
event that any other default that with the passing of time or the giving of
notice, or both, would constitute an event of default exists with respect to the
Notes, upon notice by 25% or more in principal amount of the Notes to the
Trustee, the Trustee shall have the right to give notice to the Company and the
holders of such Indebtedness (or trustees or agents therefor) of a payment
blockage, and thereafter no payments of principal of (or premium, if any) or
interest on or otherwise due in respect of such Indebtedness may be made for a
period of 179 days from the date of such notice; and (iii) such Indebtedness may
not (x) provide for payments of principal of such Indebtedness at the stated
maturity thereof or by way of a sinking fund applicable thereto or by way of any
mandatory redemption, defeasance, retirement or repurchase thereof by the
Company (including any redemption, retirement or repurchase which is contingent
upon events or circumstances, but excluding any retirement required by virtue of
acceleration of such Indebtedness upon an event of default thereunder), in each
case prior to the final Stated Maturity of the Notes or (y) permit redemption or
other retirement (including pursuant to an offer to purchase made by the
Company) of such other Indebtedness at the option of the holder thereof prior to
the final Stated Maturity of the Notes, other than a redemption or other
retirement at the option of the holder of such Indebtedness (including pursuant
to an offer to purchase made by the Company) which is conditioned upon a change
of control of the Company pursuant to provisions substantially similar to those
described under "--Repurchase at the Option of Holders--Change of Control" (and
which shall provide that such Indebtedness will not be repurchased pursuant to
such provisions prior to the Company's repurchase of the Notes required to be
repurchased by the Company pursuant to the provisions described under
"--Repurchase at the Option of Holders--Change of Control").

"SUBSIDIARY" means, with respect to any Person, (i) any corporation more
than 50% of the outstanding shares of Voting Stock of which is owned, directly
or indirectly, by such Person, or by one or more other Subsidiaries of such
Person, or by such Person and one or more other Subsidiaries of such Person,
(ii) any general partnership, joint venture or similar entity, more than 50% of
the outstanding partnership or similar interests of which are owned, directly or
indirectly, by such Person, or by one or more other Subsidiaries of such Person,
or by such Person and one or more other Subsidiaries of such Person and (iii)
any limited partnership of which such Person or any Subsidiary of such Person is
a general partner.

"TELECOMMUNICATIONS ASSETS" means all assets, rights (contractual or
otherwise) and properties, whether tangible or intangible, used or intended for
use in connection with a Telecommunications Business.

"TELECOMMUNICATIONS BUSINESS" means the business of (i) transmitting,
providing services relating to or developing applications for the transmission
of, voice, video or data through owned or leased wireline or wireless
transmission facilities or over the internet, (ii) creating, developing,
constructing, installing, repairing, maintaining or marketing
communications-related systems, network equipment and facilities, software and
other products, (iii) creating, developing, producing or marketing audiotext or
videotext,

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(iv) marketing (including direct marketing and telemarketing), or (v)
evaluating, participating in or pursuing any other business that is primarily
related to those identified in the foregoing clauses (i), (ii), (iii) or (iv)
above (in the case of clauses (iii) and (iv), however, in a manner consistent
with the Company's manner of business on the Issue Date), and shall, in any
event, include all businesses in which the Company or any of its Subsidiaries
are engaged on the Issue Date; PROVIDED that the determination of what
constitutes a Telecommunications Business shall be made in good faith by the
Board of Directors.

"TOTAL COMMON EQUITY" of any Person means, as of any date of determination
the product of (i) the aggregate number of outstanding primary shares of Common
Stock of such Person on such day (which shall not include any options or
warrants on, or securities convertible or exchangeable into, shares of Common
Stock of such Person) and (ii) the average Closing Price of such Common Stock
over the 20 consecutive Trading Days immediately preceding such day. If no such
Closing Price exists with respect to shares of any such class, the value of such
shares for purposes of clause (ii) of the preceding sentence shall be determined
by the Board of Directors of the Company in good faith and evidenced by a
resolution of the Board of Directors filed with the Trustee.

"TRADING DAY" means, with respect to a security traded on a securities
exchange, automated quotation system or market, a day on which such exchange,
system or market is open for a full day of trading.

"UNRESTRICTED SUBSIDIARY" means any Subsidiary of the Company that the
Company has classified as an "Unrestricted Subsidiary" and that has not been
reclassified as a Restricted Subsidiary, pursuant to the terms of the Indenture.

"U.S. GOVERNMENT OBLIGATIONS" means (x) securities that are (i) direct
obligations of the United States of America for the payment of which the full
faith and credit of the United States of America is pledged or (ii) obligations
of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the payment of which is
unconditionally Guaranteed as a full faith and credit obligation by the United
States of America, which, in either case, are not callable or redeemable at the
option of the issuer thereof, and (y) depository receipts issued by a bank (as
defined in Section 3(a)(2) of the Securities Act) as custodian with respect to
any U.S. Government Obligation which is specified in clause (x) above and held
by such Bank for the account of the holder of such depository receipt, or with
respect to any specific payment of principal or interest on any U.S. Government
Obligation which is so specified and held, PROVIDED that (except as required by
law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific payment
of principal or interest of the U.S. Government Obligation evidenced by such
depository receipt.

"VENDOR FINANCING INDEBTEDNESS" means any Indebtedness of the Company or any
Restricted Subsidiary Incurred in connection with the acquisition or
construction of Telecommunications Assets.

"VOTING STOCK" means, with respect to any Person, securities of any class or
classes of Capital Stock in such Person entitling the holders thereof (whether
at all times or at the times that such class of Capital Stock has voting power
by reason of the happening of any contingency) to vote in the election of
members of the board of directors or comparable body of such Person.

"WHOLLY-OWNED SUBSIDIARY" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests (other than
any director's qualifying shares) of which shall at the time be owned by such
Person or by one or more other Wholly-Owned Subsidiaries of such Person or by
such Person and one or more other Wholly-Owned Subsidiaries of such Person.

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BOOK-ENTRY; DELIVERY AND FORM

The Exchange Notes will initially be represented by one or more permanent
global notes in definitive, fully registered form without interest coupons (each
a "Global Note") and will be deposited with the Trustee as custodian for, and
registered in the name of, Cede & Co., as nominee of the Depositary.

Except as set forth below regarding "Certificated Notes," owners of
beneficial interests in the Global Note(s) will not be entitled to receive
physical delivery of Certificated Notes (as defined below).

The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers, banks and trust companies,
clearing corporations and certain other organizations. Access to the
Depositary's system is also available to other entities such as banks, brokers,
dealers and trust companies (collectively, the "Indirect Participants" or the
"Depositary's Indirect Participants") that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly. Persons who are
not Participants may beneficially own securities held by or on behalf of the
Depositary only through the Depositary's Participants or the Depositary's
Indirect Participants.

The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Note(s), the Depositary will credit
the accounts of Participants designated by the Exchange Agent with portions of
the principal amount of the Global Note(s) and (ii) ownership of the Notes
evidenced by the Global Note(s) will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by the Depositary
(with respect to the interests of the Depositary's Participants), the
Depositary's Participants and the Depositary's Indirect Participants. Holders of
Notes are advised that the laws of some states require that certain persons take
physical delivery in definitive form of securities that they own. Consequently,
the ability to transfer Notes evidenced by the Global Note(s) will be limited to
such extent.

So long as the holder of the Global Note(s) is the registered owner of any
Notes, the holder of the Global Note(s) will be considered the sole holder under
the Indenture of any Notes evidenced by the Global Note(s). Beneficial owners of
Notes evidenced by the Global Note(s) under the Indenture will not be considered
the owners or holders thereof under the Indenture for any purpose, including
with respect to the giving of any directions, instructions or approvals to the
Trustee thereunder. Neither the Company nor the Trustee will have any
responsibility or liability for any aspect of the records of the Depositary or
for maintaining, supervising or reviewing any records of the Depositary relating
to the Notes.

Payments in respect of the principal of, premium, if any, and interest on
any Notes registered in the name of the holder of the Global Note(s) on the
applicable record date will be payable by the Trustee to or at the direction of
the holder of the Global Note(s) in its capacity as the registered holder under
the Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the persons in whose names Notes, including the Global Note(s), are
registered as the owners thereof for the purpose of receiving such payments.
Consequently, neither the Company nor the Trustee has or will have any
responsibility or liability for the payment of such amounts to beneficial owners
of Notes. The Company believes, however, that it is currently the policy of the
Depositary to immediately credit the accounts of the relevant Participants with
such payments, in amounts proportionate to their respective holdings of
beneficial interests in the Notes as shown on the records of the Depositary.
Payments by the Depositary's Participants and the Depositary's Indirect
Participants to the beneficial owners of Notes will be governed by standing
instructions and customary practice and will be the responsibility of the
Depositary's Participants or the Depositary's Indirect Participants.

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CERTIFICATED NOTES

Subject to certain conditions, any person having a beneficial interest in
the Global Note(s) may, upon request to the trustee, exchange such beneficial
interest for Notes in registered form without interest coupons ("Certificated
Notes"). Upon any such issuance, the Trustee is required to register such
Certificated Notes in the name of, and cause the same to be delivered to, such
person or persons (or the nominee of any thereof). If (i) the Company notifies
the Trustee in writing that the Depositary is no longer willing or able to act
as a depositary and the Company is unable to locate a qualified successor within
90 days or (ii) the Company, at its option, notifies the Trustee in writing that
it elects to cause the issuance of Notes in the form of Certificated Notes under
the Indenture, then, upon surrender by the holder of Global Note(s) of its
Global Note(s), Certificated Notes will be issued to each person that the holder
of Global Note(s) and the Depositary identify as being the beneficial owner of
the related Notes.

Neither the Company nor the Trustee will be liable for any delay by the
holder of Global Note(s) or the Depositary in identifying the beneficial owners
of Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the holder of the Global Note(s) or
the Depositary for all purposes.

SAME DAY SETTLEMENT AND PAYMENT

The Indenture requires that payments in respect of the Notes represented by
the Global Note(s) (including principal, premium, if any, and interest, if any)
be made by wire transfer of immediately available funds to the accounts
specified by the holder of the Global Note(s). With respect to Certificated
Notes, the Company will make all payments of principal, premium, if any,
interest, if any, by wire transfer of immediately available funds to the
accounts specified by the holders thereof or, if no such account is specified,
by mailing a check to each such holder's registered address. The Notes
represented by the Global Note(s) are expected to trade in the Depositary's Same
Day Funds Settlement System, and any permitted secondary market trading activity
in such Notes will therefore be required by the Depositary to be settled in
immediately available funds. The Company expects that secondary trading in the
Certificated Notes will also be settled in immediately available funds.

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of: (i) 100,000,000
shares of Common Stock and (ii) 10,000,000 shares of preferred stock, $.0001 par
value per share. Of the authorized Common Stock, 10,135,164 shares have been
designated Series A Common Stock and 89,864,836 have been designated Series B
Common Stock. As of October 1, 1998, no shares of preferred stock, 10,135,164
shares of Series A Common Stock, 15,945,708 shares of Series B Common Stock and
warrants to purchase 25,188,021 shares of Series B Common Stock were issued and
outstanding.

COMMON STOCK

Except as otherwise required by law, actions taken at the Company's
stockholder meetings require the affirmative vote of a majority of the shares
represented at the meeting and that a quorum be present. Other than the right of
first refusal held by Enron and the Sturm Entities described elsewhere herein,
the holders of Common Stock have no preemptive rights. See "Certain
Transactions--Investor Rights Agreement." In the event of a liquidation,
dissolution or winding up of the Company, holders of Common Stock are entitled
to share ratably in the assets of the Company which are legally available for
distribution, if any, remaining after the payment of all debts and liabilities
of the Company and the liquidation preference of any then outstanding preferred
stock. At present there is no established market for the Company's Common Stock.

SERIES A COMMON STOCK. Each share of the Company's Series A Common Stock
entitles the holder thereof to ten votes on all matters submitted to a vote of
stockholders. Each share of Series A Common

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Stock is convertible at any time and from time to time at the option of the
holder thereof into one share of Series B Common Stock in accordance with the
terms of the Company's Certificate of Incorporation. In addition, (i) upon a
sale or transfer of any Series A Common Stock to anyone other than (A) a natural
person who is qualified as an accredited investor under applicable securities
laws and who is a member, manager or officer of Spectra 3 or an affiliate of any
such member, manager or officer (a "Permitted Transferee") or (B) an affiliate
of Donald L. Sturm or Enron, or (ii) with respect to shares of Series A Common
Stock held by Spectra 3, upon a transfer of a controlling interest in Spectra 3
to any person or entity other than Enron, Donald L. Sturm, a Permitted
Transferee or one of their affiliates, each share of Series A Common Stock
automatically converts into one share of Series B Common Stock. Spectra 3 and
Enron, the two principal holders of Series A Common Stock, are parties to the
Securityholders Agreement, which, among other things, contains agreements with
respect to the designation, election, removal and replacement of the members of
the Company's Board of Directors other than the director elected by the holders
of the Company's Series B Common Stock. See "Certain
Transactions--Securityholders Agreement."

SERIES B COMMON STOCK. Each share of Series B Common Stock of the Company
entitles the holder thereof to one vote on all matters submitted to a vote of
stockholders. From and after July 1, 1998, the holders of Series B Common Stock
voting as a class will be entitled to elect one director of the Company at each
meeting called for the election of directors. Any vacancy occurring because of
the death, resignation or removal of a director elected by holders of Series B
Common Stock shall be filled by the vote or written consent of a majority of the
shares of Series B Common Stock or, in the absence of such action by the holders
of Series B Common Stock, by the action of the remaining directors then in
office. All other directors shall be elected by the holders of Series A Common
Stock and Series B Common Stock voting together.

PREFERRED STOCK

The preferred stock may be issued from time to time in one or more series.
Subject to limitations imposed by the Certificate of Incorporation of the
Company, the Board of Directors has the authority to fix the number of shares of
each such series, determine the designation thereof and to determine or alter
the rights, preferences and restrictions imposed upon any unissued series of
preferred stock. The issuance of preferred stock in the future could adversely
affect the rights of the holders of Common Stock. For example, an issuance of
preferred stock could result in a class of securities outstanding with
preferences over the common stock with respect to liquidations.

WARRANTS ISSUED IN CONNECTION WITH THE PRIVATE NOTE OFFERING

In the Private Note Offering the Company sold 470,000 units (the "Units"),
each Unit consisting of $1,000 principal amount at maturity of Private Notes and
a warrant to purchase 7.9002 shares of the Company's Series B Common Stock
(subject to adjustment) (each, a "Warrant Share"). The warrants issued in
connection with the Private Note Offering (the "Private Note Warrants") have an
exercise price of $.01 per share, are exercisable at any time on or after the
earlier to occur of (i) May 1, 1999, (ii) an initial public offering of the
Company's Series B common stock or (iii) in the event of a Change of Control of
the Company, and expire on April 15, 2008. Pursuant to the terms thereof, the
separation of the Private Note Warrants from the Private Notes occurred on July
11, 1998, 90 days after April 13, 1998 (the date of issuance of the Units). The
Private Note Warrants have the registration rights set forth below under the
caption "--Registration Rights." The Private Note Warrants are currently held of
record by one owner.

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REGISTRATION RIGHTS

Several agreements provide registration rights to certain of the Company's
investors.

THE INVESTOR RIGHTS AGREEMENT. The Amended and Restated Investor Rights
Agreement grants certain demand and "piggyback" registration rights to the Sturm
Entities, Enron and certain other investors. Subject to certain exceptions and
requirements, the parties to the Amended and Restated Investor Rights Agreement
are entitled to demand three long-form registrations; provided, however, that
the Company is not required to effect demand registrations prior to the earlier
to occur of January 31, 2000 or the Company's first firm commitment underwritten
public offering of its Series B Common Stock. In addition, subject to certain
exceptions and requirements, the parties to the Amended and Restated Investor
Rights Agreement are entitled to demand unlimited short-form registrations once
such short-form registration becomes available to the Company. The parties to
the Amended and Restated Investor Rights Agreement also possess "piggyback"
registration rights which entitle them to have their shares registered on
registration statements relating to primary or secondary registered public
offerings of the Company's securities. The parties to the Amended and Restated
Investor Rights Agreement are subject to certain cutback restrictions in
connection with any public offerings of the Company's equity securities.

CREDIT FACILITY LENDER WARRANT. Pursuant to a warrant (the "Lender
Warrant") to purchase 800,000 shares of Series B Common Stock issued to one of
the Lenders in connection with the Credit Facility, the holder thereof is
entitled, subject to certain exceptions and requirements more particularly set
forth therein, to demand two long-form registrations; PROVIDED, HOWEVER, that
the Company is not required to effect such demand registrations prior to the
earlier to occur of January 31, 2000 or the Company's first firm commitment
public offering of its Series B Common Stock. The holder of the Lender Warrant
also possesses "piggyback" registration rights which entitle it to have its
shares registered on registration statements relating to primary or secondary
registered public offerings of the Company's securities. The holder of the
Lender Warrant is subject to certain cutback restrictions in connection with any
public offerings of the Company's equity securities.

PREVIOUS LENDER WARRANT. Pursuant to two warrants to purchase an aggregate
amount of 470,092 shares of Series B Common Stock issued to a previous lender of
the Company, the holder thereof was granted the same rights to "piggyback"
registrations as were granted to the parties under the Amended and Restated
Investor Rights Agreement.

PRIVATE NOTE WARRANTS. Beginning the earlier of April 15, 2003 or 180 days
after an initial Public Equity Offering, the holders of one-quarter or more of
the Private Note Warrants and the Warrant Shares will be entitled to require the
Company to effect one demand registration (the "Demand Registration") under the
Securities Act of the Warrant Shares, subject to certain limitations. Upon a
demand, the Company will (a) notify the holders of all Warrants and Warrant
Shares that a demand registration has been requested, (b) prepare, file and use
its best efforts to cause to become effective within 120 days of such demand a
registration statement in respect of all of the Warrant Shares which holders
request, no later than 30 days after the date of such notice, to have included
therein (the "Included Securities"); PROVIDED, that the Company shall not be
required to so notify holders of Warrants and Warrant Shares and file such
demand registration statement within 90 days following any underwritten offering
of equity securities for the Company's own account or within 60 days following
any underwritten offering of equity securities for the account of any
securityholder of the Company, and (c) keep such registration statement
continuously effective for the shorter of (i) 180 days (the "Effectiveness
Period") or (ii) such period of time as all of the Warrant Shares included in
such registration statement shall have been sold thereunder; PROVIDED, that the
Company may postpone the filing period, suspend the effectiveness of any
registration statement, suspend the use of any prospectus and shall not be
required to amend or supplement the registration statement, any related
prospectus or any document incorporated therein by reference (a "Black Out
Period") in the event that (i) an event or circumstance occurs and is continuing
as a result of which the registration statement, any related prospectus or any
document incorporated therein by

113
<PAGE>
reference as then amended or supplemented would, in the Company's good faith
judgment, contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading or (ii) for a
period of up to 90 days, the Company reasonably and in good faith determines
that the filing or effectiveness of, or sales pursuant to, such registration
statement would materially interfere with any significant pending transaction
involving the Company or require disclosure of material information which the
Company has a bona fide business purpose for keeping confidential; PROVIDED
FURTHER, that the Effectiveness Period shall be extended by the number of days
in any Black Out Period. In the event of any Black Out Period, the Company will
so notify the holders of Warrants and Warrant Shares. Holders of Warrant Shares
have priority for inclusion in a Demand Registration over any other security
holders seeking to include securities in such registration.

Holders of Warrants and Warrant Shares will also have the right to include
the Warrant Shares in any registration statement under the Securities Act filed
by the Company for its own account or for the account of any of its security
holders covering the sale of Common Stock (other than (a) a registration
statement on Form S-4 or S-8, (b) a registration statement filed in connection
with an offer of securities solely to existing security holders or any offer of
debt securities or convertible debt securities or (c) a Demand Registration) for
sale on the same terms and conditions as the securities of the Company or any
other selling security holder included therein (a "Piggy-Back Registration") if
and whenever any such registration statement is filed under the Securities Act,
except that the Piggy-Back Registration right of holders of Warrants and Warrant
Shares shall not apply to any Public Equity Offering that is the initial Public
Equity Offering of the Company unless the securities of other selling security
holders are to be included therein. In the case of a Piggy-Back Registration,
the number of Warrant Shares requested to be included therein is subject to pro
rata reduction (a "Cut Back") based upon the number of Warrant Shares and other
securities held by each holder of Warrants and Warrant Shares and any other
security holders exercising piggy-back registration rights to the extent that
the Company is advised by the managing underwriter, if any, therefor that the
total number or type of Warrant Shares or other securities to be included
therein is such as to materially and adversely affect the success of the
offering, except that (i) 800,000 shares of Series B Common Stock issuable upon
exercise of the Lender Warrant generally have seniority for inclusion over the
Warrant Shares and securities having registration rights under the Amended and
Restated Investor Rights Agreement and (ii) in the case of a demand registration
under the Amended and Restated Investor Rights Agreement holders of demand
registration rights thereunder have priority over the Warrant Shares and
securities issuable upon exercise of a the Lender Warrant.

If the Company has complied with all its obligations with respect to a
Demand Registration or a Piggy-Back Registration relating to an underwritten
public offering, all holders of Warrants and Warrant Shares, upon request of the
lead managing underwriter with respect to such underwritten public offering,
will be required to not sell or otherwise dispose of any Warrants and Warrant
Shares owned by them for a period not to exceed 180 days from the consummation
of such underwritten public offering; PROVIDED, that except for the initial
Public Equity Offering of the Company, such requirement shall apply to Warrant
Shares not sold in a Demand Registration or Piggy-Back Registration due to a Cut
Back for a period not to exceed 90 days from such date of consummation.

CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

The following are the material federal tax income consequences expected to
result to holders whose Private Notes are exchanged for Exchange Notes in the
Exchange Offer. This discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable Treasury regulations,
judicial authority and administrative rulings and practice. There can be no
assurance that the Internal Revenue Service (the "Service") will not take a
contrary view, and no ruling from the Service has been or will be sought with
respect to the Exchange Offer. Legislative, judicial or administrative changes
or interpretations may be forthcoming that could alter or modify the statements
and conclusions set forth

114
<PAGE>
herein. Any such changes or interpretations may or may not be retroactive and
could affect the tax consequences to holders. Certain holders (including
insurance companies, tax-exempt organizations, financial institutions,
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) may be subject to special rules not discussed
below. EACH HOLDER OF PRIVATE NOTES SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES OF EXCHANGING PRIVATE NOTES FOR EXCHANGE NOTES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN LAWS.

The exchange of Private Notes for Exchange Notes should be treated as a
"non-event" for federal income tax purposes because the Exchange Notes should
not be considered to differ materially in kind or extent from the Private Notes.
As a result, no material federal income tax consequences should result to
holders exchanging Private Notes for Exchange Notes.

PLAN OF DISTRIBUTION

Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Exchange Notes received in exchange for Private Notes
where such Private Notes were acquired as a result of market-making activities
or other trading activities. The Company has agreed that, starting on the
Expiration Date and ending on the close of business one year after the
Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until January 6, 1999, all dealers effecting transactions in the
Exchange Notes may be required to deliver a prospectus.

The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Exchange Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit of any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.

For a period of one year after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Notes) other than commissions or concessions of any brokers or
dealers and will indemnify the holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.

115
<PAGE>
LEGAL MATTERS

The validity of the Exchange Notes offered hereby will be passed upon for
the Company by Latham & Watkins, San Diego, CA, counsel to the Company. The
description of telecommunications regulatory matters contained in this
Prospectus is being passed upon for the Company by Blumenfeld & Cohen,
Washington, D.C. Mr. Stiska and five other Latham & Watkins attorneys own an
aggregate of 57,351 shares of Series B Common Stock, warrants to purchase an
aggregate of 9,634 shares of Series B Common Stock and options to purchase
15,000 shares of Series B Common Stock.

EXPERTS

The financial statements as of September 30, 1996 and 1997 and for each of
the three years in the period ended September 30, 1997 and for the period from
September 1, 1993 (inception) through September 30, 1997, included in this
Prospectus, have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.

CHANGE IN ACCOUNTANTS

Effective November 1996, the Company engaged Price Waterhouse LLP as the
Company's independent accountants and dismissed Coopers & Lybrand L.L.P. as its
independent accountants. The decision to change independent accountants was
approved by the Company's Board of Directors. The reports of Coopers & Lybrand
L.L.P. on the Company's financial statements for the two years ended September
30, 1995, and for the period from September 1, 1993 (inception) through
September 30, 1995, did not contain an adverse opinion or disclaimer of opinion
and were not qualified or modified as to audit scope or accounting principles.
There were no disagreements with Coopers & Lybrand L.L.P. on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures during the two years ended September 30, 1995, and for the
period from September 1, 1993 (inception) through September 30, 1995, and
through the date of their dismissal. Coopers & Lybrand L.L.P. has not audited or
reported on any financial statements subsequent to September 30, 1995. Prior to
November 1996, the Company had not consulted with Price Waterhouse LLP on items
which involved the Company's accounting principles or the form of audit opinion
to be issued on the Company's financial statements.

AVAILABLE INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act with respect to the Exchange Notes offered hereby.
As permitted by the rules and regulations of the Commission, this Prospectus
omits certain information, exhibits and undertakings contained in the
Registration Statement. For further information with respect to the Company and
the Exchange Notes offered hereby, reference is made to the Registration
Statement, including the exhibits thereto and the financial statements, notes
and schedules filed as a part thereof. As a result of the Exchange Offer, the
Company will become subject to the informational requirements of the Exchange
Act. The Registration Statement (and the exhibits and schedules thereto), as
well as the periodic reports and other information filed by the Company with the
Commission, may be inspected and copied at the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission located at Room 1400,
75 Park Place, New York, New York 10007 and Suite 1400, Northwestern Atrium
Center, 500 West Madison Street, Chicago, Illinois 6061-2511. Copies of such
materials may be obtained from the Public Reference Section of the Commission,
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
its public reference facilities in New York, New York and Chicago, Illinois at
the prescribed rates. Additionally, the Commission maintains a Web site that
contains reports, proxy and information statements regarding registrants that
file electronically with the Commission and the address of this site is
http://www.sec.gov. Statements contained in this Prospectus as to the contents
of any contract or other document are not necessarily

116
<PAGE>
complete, and in each instance reference is made to the copy of such contract or
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.

Pursuant to the Indenture, the Company has agreed to furnish to the Trustee
and to registered holders of the Notes, without cost to the Trustee or such
registered holders, copies of all reports and other information that would be
required to be filed by the Company with the Commission under the Exchange Act,
whether or not the Company is then required to file reports with the Commission.
As a result of this Exchange Offer, the Company will become subject to the
periodic reporting and other informational requirements of the Exchange Act. In
the event that the Company ceases to be subject to the informational
requirements of the Exchange Act, the Company has agreed that, so long as any
Notes remain outstanding, it will file with the Commission (but only if the
Commission at such time is accepting such voluntary filings) and distribute to
holders of the Private Notes or the Exchange Notes, as applicable, copies of the
financial information that would have been contained in such annual reports and
quarterly reports, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations," that would have been required to
be filed with the Commission pursuant to the Exchange Act. The Company will also
furnish such other reports as it may determine or as may be required by law.

The principal address of the Company is 9333 Genesee Avenue, Suite 200, San
Diego, California 92121, and the Company's telephone number is (619) 552-8010.

117
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
(FORMERLY SPECTRANET INTERNATIONAL)
(A DEVELOPMENT STAGE ENTERPRISE)

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Accountants........................................................................ F-2

Consolidated Balance Sheets at September 30, 1996 and 1997............................................... F-3

Consolidated Statements of Operations for the years ended September 30, 1995, 1996 and 1997 and for the
period from September 1, 1993 (inception) through September 30, 1997................................... F-4

Consolidated Statements of Shareholders' Equity (Deficit) for the period from September 1, 1993
(inception) through September 30, 1997................................................................. F-5

Consolidated Statements of Cash Flows for the years ended September 30, 1995, 1996 and 1997 and for the
period from September 1, 1993 (inception) through September 30, 1997................................... F-6

Notes to Consolidated Financial Statements............................................................... F-7

UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheet at June 30, 1998.............................................................. F-30

Consolidated Statements of Operations for the nine months ended June 30, 1997 and 1998 and for the period
from September 1, 1993 (inception) to June 30, 1998.................................................... F-31

Consolidated Statement of Stockholders' Equity for the nine months ended June 30, 1998................... F-32

Consolidated Statements of Cash Flows for the nine months ended June 30, 1997 and 1998 and for the period
from September 1, 1993 (inception) to June 30, 1998.................................................... F-33

Notes to Unaudited Consolidated Financial Statements..................................................... F-34
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
FirstWorld Communications, Inc. (formerly SpectraNet International)

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of shareholders' equity (deficit) and of
cash flows present fairly, in all material respects, the financial position of
FirstWorld Communications, Inc. (formerly SpectraNet International) and its
subsidiaries, a development stage enterprise, at September 30, 1996 and 1997,
and the results of their operations and their cash flows for each of the three
years in the period ended September 30, 1997 and for the period from September
1, 1993 (inception) through September 30, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP
San Diego, California
March 5, 1998, except as to
Note 13 which is as
of March 17, 1998

F-2
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
(FORMERLY SPECTRANET INTERNATIONAL)
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1996 1997
----------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 71,522 $ 536,275
Restricted cash.................................................................... -- 50,000
Accounts receivable................................................................ 102,521 72,567
Prepaid expenses................................................................... 24,406 100,442
Other current assets............................................................... 30,697 14,709
----------- -------------
Total current assets........................................................... 229,146 773,993
Property and equipment, net.......................................................... 1,087,552 20,331,353
Deferred financing costs, net of accumulated amortization of $0 and $60,872.......... -- 4,067,932
Other assets, net of accumulated amortization of $25,098 and $36,590................. 110,614 147,812
----------- -------------
$ 1,427,312 $ 25,321,090
----------- -------------
----------- -------------

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................................................... $ 1,666,420 $ 2,483,793
Accrued interest................................................................... 18,138 569,816
Accrued employee costs............................................................. 272,065 205,012
Other accrued expenses............................................................. 2,807 113,266
Short-term borrowings, net of discount............................................. -- 401,262
Current portion of long-term debt.................................................. 27,212 8,446
Current portion of capital lease obligations....................................... 43,034 311,166
----------- -------------
Total current liabilities...................................................... 2,029,676 4,092,761
Long-term debt, net of discount...................................................... 17,299 11,756,283
Convertible bridge notes............................................................. 835,000 405,500
Capital lease obligations............................................................ 86,818 6,801,926
----------- -------------
Total liabilities.............................................................. 2,968,793 23,056,470
----------- -------------
Commitments (Note 8)................................................................. -- --
Shareholders' equity (deficit):
Preferred stock, no par value, 10,000,000 and 5,160,335 shares authorized at
September 30, 1996 and 1997:
Series C, convertible, voting, 2,600,000 shares designated at September 30, 1997;
2,600,000 shares issued and outstanding; liquidation preference at September
30, 1997 of $13,000,000........................................................ -- 12,279,362
Series B, convertible, voting, 7,000,000 and 2,426,135 shares designated at
September 30, 1996 and 1997; 2,016,638 shares issued and outstanding;
liquidation preference at September 30, 1997 of $3,387,955..................... 3,670,060 3,670,060
Series A, convertible, non-voting, 143,134 and 134,200 shares designated at
September 30, 1996 and 1997; 118,667 shares issued and outstanding............. 395,162 395,162
Common stock, voting, no par value, 5,000,000 and 15,000,000 shares authorized at
September 30, 1996 and 1997; 3,246,000 and 3,262,900 shares issued and
outstanding...................................................................... (228,934) (226,984)
Warrants........................................................................... -- 1,000,960
Shareholder receivables............................................................ (173,167) (96,500)
Deficit accumulated during development stage....................................... (5,204,602) (14,757,440)
----------- -------------
Total shareholders' equity (deficit)........................................... (1,541,481) 2,264,620
----------- -------------
$ 1,427,312 $ 25,321,090
----------- -------------
----------- -------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
(FORMERLY SPECTRANET INTERNATIONAL)
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED SEPTEMBER 30, SEPTEMBER 1, 1993
----------------------------------------- (INCEPTION) TO
1995 1996 1997 SEPTEMBER 30, 1997
----------- ------------- ------------- ------------------
<S> <C> <C> <C> <C>
Service revenue.................................... $ 56,513 $ 279,483 $ 75,118 $ 495,866
Other revenue...................................... 40,000 75,000 95,715 210,715
----------- ------------- ------------- ------------------
96,513 354,483 170,833 706,581
----------- ------------- ------------- ------------------
Costs and expenses:
Network development and operations............... 188,188 1,708,416 3,169,854 5,066,458
Selling, general and administrative.............. 739,584 2,409,442 4,724,649 8,324,904
Depreciation and amortization.................... 39,007 75,258 501,354 636,820
----------- ------------- ------------- ------------------
966,779 4,193,116 8,395,857 14,028,182
----------- ------------- ------------- ------------------
Loss from operations............................... (870,266) (3,838,633) (8,225,024) (13,321,601)
Other income (expense):
Interest expense................................. (38,011) (26,517) (1,372,377) (1,489,360)
----------- ------------- ------------- ------------------
Interest income.................................. -- 8,958 149,243 158,201
----------- ------------- ------------- ------------------
Loss before extraordinary item..................... (908,277) (3,856,192) (9,448,158) (14,652,760)
Extraordinary item--extinguishment of
debt (Note 5).................................... -- -- (104,680) (104,680)
----------- ------------- ------------- ------------------
Net loss........................................... $ (908,277) $ (3,856,192) $ (9,552,838) $ (14,757,440)
----------- ------------- ------------- ------------------
----------- ------------- ------------- ------------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.

(FORMERLY SPECTRANET INTERNATIONAL)

(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

FOR THE PERIOD FROM SEPTEMBER 1, 1993 (INCEPTION) THROUGH SEPTEMBER 30, 1997

<TABLE>
<CAPTION>
SERIES C SERIES B SERIES A
CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK
--------------------- -------------------- -------------------- --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT WARRANTS
--------- ---------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock
for net liabilities
assumed by Separating
Shareholders under
Separation Agreement... -- $ -- -- $ -- -- $ -- 100 $(404,621) $ --
Net loss for the period
from September 1, 1993
(inception) through
September 30, 1993..... -- -- -- -- -- -- -- -- --
--------- ---------- --------- --------- --------- --------- --------- --------- ---------
BALANCE AT SEPTEMBER 30,
1993................... -- -- -- -- -- -- 100 (404,621) --
Issuance of common stock
as
compensation--October
1993................... -- -- -- -- -- -- 2,519,900 2,520 --
Issuance of common
stock--March 1994 to
July 1994.............. -- -- -- -- -- -- 279,000 418,501 --
Net loss for 1994........ -- -- -- -- -- -- -- -- --
--------- ---------- --------- --------- --------- --------- --------- --------- ---------
BALANCE AT SEPTEMBER 30,
1994................... -- -- -- -- -- -- 2,799,000 16,400 --
Issuance of Series A
preferred stock for
settlement of notes
payable and
compensation--May
1995................... -- -- -- -- 127,601 424,912 -- -- --
Conversion of common
stock to Series B
preferred stock--June
1995................... -- -- 279,000 418,501 -- -- (279,000) (418,501) --
Issuance of Series B
preferred
stock--January 1995 to
September 1995......... -- -- 558,667 838,001 -- -- -- -- --
Net loss for 1995........ -- -- -- -- -- -- -- -- --
--------- ---------- --------- --------- --------- --------- --------- --------- ---------
BALANCE AT SEPTEMBER 30,
1995................... -- -- 837,667 1,256,502 127,601 424,912 2,520,000 (402,101) --
Issuance of Series B
preferred
stock--October 1995 to
January 1996........... -- -- 500,504 750,726 -- -- -- -- --
Issuance of Series B
preferred stock for
settlement of notes
payable and for
consulting
services--December
1995................... -- -- 33,334 50,000 -- -- -- -- --
Issuance of Series B
preferred
stock--January 1996 to
June 1996.............. -- -- 641,800 1,604,500 -- -- -- -- --
Repurchase of Series A
preferred
stock--January 1996.... -- -- -- -- (8,934) (29,750) -- -- --
Issuance of Series B
preferred stock for
property and
equipment--May 1996.... -- -- 3,333 8,332 -- -- -- -- --
Issuance of common stock
for notes
receivable--May 1996... -- -- -- -- -- -- 396,000 99,000 --
Exercise of options to
purchase common stock
for shareholder notes
receivable-- May 1996
to June 1996........... -- -- -- -- -- -- 330,000 74,167 --
Net loss for 1996........ -- -- -- -- -- -- -- -- --
--------- ---------- --------- --------- --------- --------- --------- --------- ---------
BALANCE AT SEPTEMBER 30,
1996................... -- -- 2,016,638 3,670,060 118,667 395,162 3,246,000 (228,934) --
Cancellation of
shareholder notes
receivable for common
stock repurchase--
October 1996........... -- -- -- -- -- -- (90,000) (22,500) --
Repayment of shareholder
notes
receivable--December
1996 to January 1997... -- -- -- -- -- -- -- -- --
Issuance of Series C
preferred stock with
warrants to purchase
520,000 shares of
common stock during
January 1997, net of
issuance costs of
$704,638............... 2,600,000 12,279,362 -- -- -- -- -- -- 16,000
Issuance of common stock
warrants as finders
fees--January 1997..... -- -- -- -- -- -- -- -- 10,000
Issuance of common stock
warrant for
cash--January 1996..... -- -- -- -- -- -- -- -- 200,000
Exercise of options and
warrants to purchase
common stock--November
1996 to August 1997.... -- -- -- -- -- -- 106,900 24,450 --
Issuance of common stock
warrants with
debt--August 1997 to
September 1997......... -- -- -- -- -- -- -- -- 747,760
Issuance of common stock
warrants as finders
fees--September 1997... -- -- -- -- -- -- -- -- 27,200
Net loss for 1997........ -- -- -- -- -- -- -- -- --
--------- ---------- --------- --------- --------- --------- --------- --------- ---------
BALANCE AT SEPTEMBER 30,
1997................... 2,600,000 $12,279,362 2,016,638 $3,670,060 118,667 $ 395,162 3,262,900 $(226,984) $1,000,960
--------- ---------- --------- --------- --------- --------- --------- --------- ---------
--------- ---------- --------- --------- --------- --------- --------- --------- ---------

<CAPTION>
DEFICIT
ACCUMULATED TOTAL
DURING SHAREHOLDERS'
SHAREHOLDER DEVELOPMENT EQUITY
RECEIVABLES STAGE (DEFICIT)
----------- ------------ -------------
<S> <C> <C> <C>
Issuance of common stock
for net liabilities
assumed by Separating
Shareholders under
Separation Agreement... $ -- $ -- $ (404,621)
Net loss for the period
from September 1, 1993
(inception) through
September 30, 1993..... -- (22,611) (22,611)
----------- ------------ -------------
BALANCE AT SEPTEMBER 30,
1993................... -- (22,611) (427,232)
Issuance of common stock
as
compensation--October
1993................... -- -- 2,520
Issuance of common
stock--March 1994 to
July 1994.............. -- -- 418,501
Net loss for 1994........ -- (417,522) (417,522)
----------- ------------ -------------
BALANCE AT SEPTEMBER 30,
1994................... -- (440,133) (423,733)
Issuance of Series A
preferred stock for
settlement of notes
payable and
compensation--May
1995................... -- -- 424,912
Conversion of common
stock to Series B
preferred stock--June
1995................... -- -- --
Issuance of Series B
preferred
stock--January 1995 to
September 1995......... -- -- 838,001
Net loss for 1995........ -- (908,277) (908,277)
----------- ------------ -------------
BALANCE AT SEPTEMBER 30,
1995................... -- (1,348,410) (69,097)
Issuance of Series B
preferred
stock--October 1995 to
January 1996........... -- -- 750,726
Issuance of Series B
preferred stock for
settlement of notes
payable and for
consulting
services--December
1995................... -- -- 50,000
Issuance of Series B
preferred
stock--January 1996 to
June 1996.............. -- -- 1,604,500
Repurchase of Series A
preferred
stock--January 1996.... -- -- (29,750)
Issuance of Series B
preferred stock for
property and
equipment--May 1996.... -- -- 8,332
Issuance of common stock
for notes
receivable--May 1996... (99,000) -- --
Exercise of options to
purchase common stock
for shareholder notes
receivable-- May 1996
to June 1996........... (74,167) -- --
Net loss for 1996........ -- (3,856,192) (3,856,192)
----------- ------------ -------------
BALANCE AT SEPTEMBER 30,
1996................... (173,167) (5,204,602) (1,541,481)
Cancellation of
shareholder notes
receivable for common
stock repurchase--
October 1996........... 22,500 -- --
Repayment of shareholder
notes
receivable--December
1996 to January 1997... 54,167 -- 54,167
Issuance of Series C
preferred stock with
warrants to purchase
520,000 shares of
common stock during
January 1997, net of
issuance costs of
$704,638............... -- -- 12,295,362
Issuance of common stock
warrants as finders
fees--January 1997..... -- -- 10,000
Issuance of common stock
warrant for
cash--January 1996..... -- -- 200,000
Exercise of options and
warrants to purchase
common stock--November
1996 to August 1997.... -- -- 24,450
Issuance of common stock
warrants with
debt--August 1997 to
September 1997......... -- -- 747,760
Issuance of common stock
warrants as finders
fees--September 1997... -- -- 27,200
Net loss for 1997........ -- (9,552,838) (9,552,838)
----------- ------------ -------------
BALANCE AT SEPTEMBER 30,
1997................... $ (96,500) ($14,757,440) $ 2,264,620
----------- ------------ -------------
----------- ------------ -------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
(FORMERLY SPECTRANET INTERNATIONAL)
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 1 1993
YEAR ENDED SEPTEMBER 30, (INCEPTION), TO
---------------------------------- SEPTEMBER 30,
1995 1996 1997 1997
--------- ---------- ----------- ----------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss...................................................... $(908,277) $(3,856,192) $(9,552,838) $(14,757,440)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 39,007 75,258 501,354 636,820
Amortization of deferred financing costs.................. -- -- 60,872 60,872
Amortization of debt discount............................. -- -- 58,242 58,242
Non-cash interest expense................................. -- -- 37,782 37,782
Extraordinary loss on extinguishment of debt.............. -- -- 104,680 104,680
Changes in assets and liabilities:........................
Restricted cash related to operating activities......... -- -- (50,000) (50,000)
Accounts receivable..................................... 34,250 (101,771) 29,954 (31,808)
Other assets............................................ (7,092) (116,117) (98,219) (221,582)
Accounts payable and accrued expenses................... 61,486 1,830,947 1,462,457 3,354,902
--------- ---------- ----------- ----------------
Net cash used in operating activities................. (780,626) (2,167,875) (7,445,716) (10,807,532)
--------- ---------- ----------- ----------------
Cash flows from investing activities:
Purchases of property and equipment........................... (24,639) (908,120) (12,636,918) (13,575,790)
Procurement of patents........................................ (20,115) (15,317) (9,827) (56,763)
--------- ---------- ----------- ----------------
Net cash used in investing activities................. (44,754) (923,437) (12,646,745) (13,632,553)
--------- ---------- ----------- ----------------
Cash flows from financing activities:
Proceeds from issuance of common stock........................ -- -- -- 418,501
Proceeds from stock option and warrant exercises.............. -- -- 24,450 24,450
Proceeds from issuance of Series B preferred stock............ 838,001 2,355,226 -- 3,193,227
Proceeds from issuance of Series C preferred stock and related
common stock warrants, net of offering costs................ -- -- 4,528,862 4,528,862
Proceeds from issuance of common stock warrants............... -- -- 200,000 200,000
Proceeds from collection of shareholder receivables........... -- -- 54,167 54,167
Principal payments on capital leases.......................... (10,663) (34,371) (114,197) (164,802)
Proceeds from issuance of convertible bridge notes............ -- 835,000 7,347,000 8,182,000
Proceeds from revolving credit facility and related
warrants.................................................... -- -- 12,172,592 12,172,592
Proceeds from short-term borrowings and related warrants...... -- -- 1,000,000 1,000,000
Principal payments on short-term borrowings................... -- -- (500,000) (500,000)
Proceeds from other long-term debt............................ -- 27,510 -- 267,735
Principal payments on other long-term debt.................... -- (26,934) (26,643) (271,355)
Payment of deferred financing costs........................... -- -- (4,129,017) (4,129,017)
--------- ---------- ----------- ----------------
Net cash provided by financing activities............. 827,338 3,156,431 20,557,214 24,976,360
--------- ---------- ----------- ----------------
Net increase in cash and cash equivalents....................... 1,958 65,119 464,753 536,275
Cash and cash equivalents at beginning of period................ 4,445 6,403 71,522 --
--------- ---------- ----------- ----------------
Cash and cash equivalents at end of period...................... $ 6,403 $ 71,522 $ 536,275 $ 536,275
--------- ---------- ----------- ----------------
--------- ---------- ----------- ----------------
Supplemental cash flows information:
Cash paid during the period for interest...................... $ 5,945 $ 14,142 $ 440,178 $ 473,765
Non-cash transactions:
Issuance of note payable for settlement of wages.............. -- -- -- 4,185
Issuance of common stock for settlement of wages.............. -- -- -- 2,520
Issuance of Series A preferred stock for settlement of notes
payable and wages........................................... 424,912 -- -- 424,912
Property and equipment purchased under capitalized leases..... 47,654 105,808 7,097,437 7,250,899
Issuance of Series B preferred stock for settlement of note
payable, for consulting services received, and for
procurement of property and equipment....................... -- 58,332 -- 58,332
Issuance of common stock for shareholder receivables.......... -- 173,167 -- 173,167
Issuance of note payable to repurchase Series A preferred
stock....................................................... -- 29,750 -- 29,750
Conversion of convertible bridge notes into Series C preferred
stock and related warrants.................................. -- -- 7,776,500 7,776,500
Issuance of common stock warrants as finders fees............. -- -- 10,000 10,000
Non-cash deferred financing costs............................. -- -- 27,200 27,200
Issuance of note payable for consulting services received..... -- -- 50,000 50,000
Cancellation of shareholder receivable for stock repurchase... -- -- 22,500 22,500
Net liabilities in excess of assets acquired in connection
with
Separation Agreement........................................ -- -- -- 404,621
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
(FORMERLY SPECTRANET INTERNATIONAL)
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--THE COMPANY

FirstWorld Communications, Inc. (the Company) commenced operations on
September 1, 1993 as a result of a Separation Agreement (the Separation
Agreement) by and among key shareholders of Lambda Link, a Nevada corporation
(Lambda Link), and Lambda Link. Pursuant to the Separation Agreement, two of the
three principal shareholders of Lambda Link (the Separating Shareholders)
exchanged the stock that they held in Lambda Link for 100 shares of Lambda Link
International, a California corporation (Lambda Link International),
representing all of the issued and outstanding stock of this wholly-owned
subsidiary of Lambda Link. In addition, the Separating Shareholders resigned
from the board of directors of Lambda Link, agreed to change the name of Lambda
Link International, and assumed certain of the existing assets and liabilities
of Lambda Link. In connection with the Separation Agreement, Lambda Link
International changed its name to SpectraNet International and assumed those
certain assets and liabilities of Lambda Link that the Separating Shareholders
received pursuant to the Separation Agreement. The transfer of such assets and
liabilities was accounted for at historical cost, which approximated the
purchase price. As discussed in Note 12, SpectraNet International changed its
name to FirstWorld Communications, Inc. on January 29, 1998.

The Company is a facilities-based integrated communications provider which
is developing networks to provide telecommunications solutions to business
customers in clustered, demographically attractive second tier markets. The
Company offers a broad array of telecommunications services, including local and
long distance telephone service, high speed Internet access, data connectivity,
LAN connectivity, web hosting and system integration services. During July 1997,
the Company commenced operations associated with the first phase of its initial
telecommunications network cluster located in Anaheim, California.

NOTE 2--DEVELOPMENT STAGE ACTIVITIES AND DEPENDENCY ON ADDITIONAL FINANCING

The Company is a development stage enterprise which has incurred substantial
operating losses and negative cash flows from network development and operations
since inception. The Company has provided services for less than three months as
of September 30, 1997 and has not achieved a significant customer base. To date,
the Company has focused primarily on the development of its product line, the
development and construction of its networks, the hiring of management and other
key personnel, the raising of capital, the acquisition of equipment, the
implementation of its sales and marketing strategy and the development of
operating systems. The development of the Company's business and the deployment
of its services and systems will require significant additional capital
expenditures, a substantial portion of which will need to be incurred before the
realization of significant revenues. Together with associated start-up operating
expenses, these capital expenditures will result in substantial negative cash
flow until an adequate revenue-generating customer base is established. In order
to implement its business plan, significant capital will be required to fund
capital expenditures, working capital, debt service and operating losses. The
Company's principal capital expenditure requirements involve the purchase,
installation and construction of network operations centers, other network
infrastructure and customer located equipment, including expenditures which
relate to the development and construction of the Anaheim network pursuant to
that certain Universal Telecommunications System Participation Agreement
described in Note 8, expenditures which will be required pursuant to those
certain agreements with The Irvine Company described in Note 12, as well as
expenditures associated with the expansion of its networks into additional
geographic clusters.

F-7
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
(FORMERLY SPECTRANET INTERNATIONAL)
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--DEVELOPMENT STAGE ACTIVITIES AND DEPENDENCY ON ADDITIONAL FINANCING
(CONTINUED)
The Company expects that its future capital requirements will require it to
obtain additional financing, which may include commercial bank borrowings,
vendor financing, or the sale or issuance of equity and debt securities either
through one or more offerings or to one or more strategic investors. There can
be no assurance that the Company will be successful in raising additional
capital in sufficient amounts to fund its strategic objectives, or that such
funds, if available, will be available on terms that the Company will consider
acceptable. Failure to raise sufficient funds may require the Company to modify,
delay or abandon some of its planned future expansion or expenditures, which
could have a material adverse effect on the Company's business, financial
condition and results of operations, including the Company's ability to make
principal and interest payments on its then existing indebtedness.

As discussed in Note 12, the Company consummated a private placement of
common stock on December 30, 1997, which resulted in the receipt of
approximately $26,330,000 in net proceeds on January 6, 1998. It is the opinion
of Company management that such net proceeds, along with the available borrowing
base on the Company's revolving credit facility (Note 6), will be adequate to
support the Company's operations through September 30, 1998. However, based upon
the factors discussed above, there can be no assurance that the Company will
achieve profitability or positive cash flow in the future or that sufficient
financing will be available to complete the Company's planned network
development efforts.

NOTE 3--SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of FirstWorld
Communications, Inc. and its wholly-owned subsidiaries. All intercompany
accounts and transactions have been eliminated in consolidation.

USE OF ESTIMATES

The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Among the more significant estimates and
assumptions made by management are those related to the Company's projected
future earnings and cash flows. Estimates of future earnings and cash flows form
the basis for management's assessment of the Company's ability to continue as a
going concern and the basis for management's assessment of the realizability of
the Company's intangible and long-lived assets. The Company's earnings and cash
flows have been and will continue to be affected by a number of influences;
therefore, actual earnings and cash flows could differ from management's
estimates.

CASH EQUIVALENTS AND RESTRICTED CASH

The Company considers all highly liquid investments with original maturities
of three months or less at the time of purchase to be cash equivalents. The
Company invests primarily in high-grade short-term investments which consist of
money market instruments. Restricted cash in support of outstanding letters of
credit totaled $50,000 at September 30, 1997.

F-8
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
(FORMERLY SPECTRANET INTERNATIONAL)
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION

The Company recognizes service revenue on local competitive access services
in the month such services are provided. Billings to customers for services in
advance of providing such services are deferred and recognized as revenue when
earned. Service revenues recognized since the Company's inception consist
primarily of reimbursable engineering, design and construction costs associated
with network service contracts with two city governments, which revenues have
been recognized as the services are provided by the Company. Other revenues
consist primarily of royalties earned under a certain patent licensing agreement
and are recorded when earned and when payment is reasonably assured.

CONCENTRATION OF CREDIT RISK

The Company's financial instruments that are exposed to concentrations of
credit risk consist principally of cash and cash equivalents and accounts
receivable. The Company places its cash and temporary cash investments with
high-quality financial institutions for which credit loss is not anticipated.
Accounts receivable at September 30, 1997 are due from commercial
telecommunications customers, approximately 70 percent of which relates to a
single customer. Credit is extended based on an evaluation of the customer's
financial condition and generally collateral is not required. The Company
maintains reserves for potential credit losses. The Company has not provided for
any anticipated credit loss as of September 30, 1997 as all amounts are
considered by management to be fully collectible.

PROPERTY AND EQUIPMENT

Property and equipment is recorded at cost and is depreciated using the
straight-line method over the estimated useful lives of the assets. Costs
capitalized in connection with the development of communication networks include
expenses associated with network engineering, design and construction.
Depreciation of communications networks and related infrastructure commences
when the applicable network becomes commercially operational.

The estimated useful lives of the Company's principal classes of assets are
as follows:

<TABLE>
<S> <C>
Network infrastructure............ 20 years
Telecommunications equipment...... 5-7 years
Building and improvements......... 30 years
Furniture, office equipment and
other........................... 3-7 years
Shorter of estimated useful life or
Leasehold improvements............ lease term
</TABLE>

CAPITALIZATION OF INTEREST

Interest costs incurred during the period of time that internally
constructed assets are being made ready for their intended use are capitalized
as part of acquiring such assets to the extent that these interest costs relate
to financing obtained in order to prepare such assets for use. During fiscal
1997, the Company capitalized approximately $52,000 in interest costs associated
with the development of the Company's initial telecommunications network in
Anaheim, California.

F-9
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
(FORMERLY SPECTRANET INTERNATIONAL)
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED FINANCING COSTS

Deferred financing costs include commitment fees and other costs related to
certain debt financing transactions and are being amortized over the initial
term of the related debt using the interest method.

PATENTS

Costs associated with the registration of patents are deferred and amortized
using the straight-line method over the estimated useful lives of the associated
patents, which approximates five years.

DEBT DISCOUNT

Discounts recorded in connection with the issuance of debt financing are
deferred and amortized over the initial term of the related debt using the
interest method.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts shown for cash equivalents, short-term borrowings and
convertible bridge notes approximate their fair values due to the relatively
short-term maturities of these instruments. Management believes that the
carrying amounts shown for long-term debt are reasonable approximations of their
fair values based upon the interest rates at which the Company could enter into
similar borrowing arrangements.

LONG-LIVED ASSETS

The Company assesses potential impairments to its long-lived assets when
there is evidence that events or changes in circumstances have made recovery of
the asset's carrying value unlikely. Potential impairment associated with
network infrastructure costs is measured on the basis of specific network
projects. An impairment loss would be recognized when the sum of the expected
future net cash flows is less than the carrying amount of the asset. No such
impairment losses have been identified by the Company during the fiscal years
presented.

STOCK-BASED COMPENSATION ACCOUNTING

The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic value method and provides pro forma
disclosures of net loss as if the minimum value method had been applied in
measuring compensation expense. Compensation charges for non-employee
stock-based compensation is measured using fair value-based methods.

INCOME TAXES

Current income tax expense is the amount of income taxes expected to be
payable for the current year. A deferred tax asset or liability is computed for
both the expected future impact of differences between the financial statement
and tax bases of assets and liabilities and for the expected future tax benefit
to be derived from tax loss and tax credit carryforwards. Valuation allowances
are established when necessary to reduce deferred tax assets to the amount
expected to be "more likely than not" realized in

F-10
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
(FORMERLY SPECTRANET INTERNATIONAL)
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
future tax returns. Tax rate changes are reflected in the statement of
operations in the period such changes are enacted.

RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform with the fiscal
1997 presentation.

NOTE 4--PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------
1996 1997
------------ -------------
<S> <C> <C>
Network infrastructure........................................... $ -- $ 12,636,955
Telecommunications equipment..................................... -- 5,048,156
Building and improvements........................................ -- 1,328,237
Furniture, office equipment and other............................ 371,617 976,341
Leasehold improvements........................................... 63,953 507,573
Construction in process.......................................... 761,750 427,986
------------ -------------
1,197,320 20,925,248
Accumulated depreciation......................................... (109,768) (593,895)
------------ -------------
$ 1,087,552 $ 20,331,353
------------ -------------
------------ -------------
</TABLE>

The following is a summary of property and equipment acquired under capital
leases, included in the above:

<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1996 1997
---------- ------------
<S> <C> <C>
Network infrastructure.............................................. $ -- $ 6,000,000
Telecommunications equipment........................................ -- 290,565
Building and improvements........................................... -- 557,612
Furniture, office equipment and other............................... 153,462 402,722
---------- ------------
153,462 7,250,899
Accumulated depreciation............................................ (40,675) (191,847)
---------- ------------
$ 112,787 $ 7,059,052
---------- ------------
---------- ------------
</TABLE>

NOTE 5--SHORT-TERM BORROWINGS

On August 29, 1997, the Company obtained a $1,000,000, 18% per annum,
short-term bridge loan with an institutional lender which was due on October 15,
1997. On September 17, 1997, the Company repaid $500,000 of the outstanding
principal balance associated with this loan, plus accrued interest thereon, and
extended the maturity date of the remaining principal balance of $500,000 to
March 16, 1998

F-11
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
(FORMERLY SPECTRANET INTERNATIONAL)
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5--SHORT-TERM BORROWINGS (CONTINUED)
through the consummation of a new loan agreement with the lender. The remaining
obligation under the new loan agreement, which bears interest at the rate of 18%
per annum, is collateralized by substantially all assets of the Company,
subordinate to the revolving credit facility described in Note 6. In connection
with the initial debt issuance on August 29, 1997, the Company issued to the
lender warrants for the purchase of 125,000 shares of common stock (Note 10).
The fair value of such warrants at the time of grant, as determined by
management based upon application of the Black-Scholes option pricing model, was
recorded as a discount on the underlying debt. Simultaneous to the execution of
the new loan agreement on September 17, 1997, which was considered to be a
substantial modification of the original loan agreement which it superseded, the
Company recognized an extraordinary charge on debt extinguishment totaling
$104,680. The extraordinary charge consisted of the write-off of unamortized
debt discount and deferred financing costs totaling $77,267 and $27,413,
respectively. Concurrently, the Company issued to the lender additional warrants
for the purchase of 175,000 shares of common stock (Note 10). The fair value of
these warrants at the time of grant, as determined by management based upon
application of the Black-Scholes option pricing model, has been recorded as a
discount on the underlying debt. The unamortized portion of the debt discount as
of September 30, 1997 totaled $148,738.

On September 2, 1997, the Company issued a $50,000, 10% per annum, unsecured
promissory note to a financial adviser of the Company as payment for services
performed in connection with the attainment of debt financing. The note was
repaid on October 2, 1997.

NOTE 6--LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1996 1997
---------- -------------
<S> <C> <C>
14% revolving credit facility; expiring September 2002 unless
earlier terminated by the lenders in September 2000; secured by
substantially all assets of the Company; net of unamortized debt
discount totaling $463,513 at September 30, 1997................. $ -- $ 11,746,861

11% secured term note with a bank; monthly installments of $681,
including interest, payable through June 1999; note secured by
certain property and equipment................................... 19,314 12,947
Other.............................................................. 25,197 4,921
---------- -------------
44,511 11,764,729
Less current portion............................................... (27,212) (8,446)
---------- -------------
$ 17,299 $ 11,756,283
---------- -------------
---------- -------------
</TABLE>

F-12
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
(FORMERLY SPECTRANET INTERNATIONAL)
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6--LONG-TERM DEBT (CONTINUED)
Aggregate principal maturities of long-term debt are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR
- -------------------------------------------------------------------------------
<S> <C>
1998........................................................................... $ 8,446
1999........................................................................... 7,191
2000........................................................................... 11,748,205
2001........................................................................... 887
-------------
$ 11,764,729
-------------
-------------
</TABLE>

REVOLVING CREDIT FACILITY

On September 16, 1997, the Company entered into a revolving credit facility
(the Credit Facility) with a syndicate of lenders (the Lenders) to provide
financing for the construction of telecommunication networks and for general
working capital purposes. Under the terms of such facility, the Company has
available a maximum borrowing capacity of $23,000,000, which may be used for
either revolving loan advances or to support letters of credit. Subject to the
terms and conditions set forth in the Credit Facility, maximum borrowings at
anytime outstanding may not exceed the sum of the following: (i) 75% of approved
capital expenditures, as defined in the Credit Facility, plus (ii) eligible
accrued interest, as defined in the Credit Facility, plus (iii) $3,000,000. The
obligations of the Company under the Credit Facility have been collateralized,
in favor of the Lenders, by a first priority, perfected security interest in
substantially all of the Company's assets, including all present and future cash
balances, accounts receivable, inventories, property and equipment and general
intangibles.

Advances under the Credit Facility bear interest at the rate of 14% per
annum and are payable monthly in arrears at a cash pay rate of 6% per annum in
year one, 9% in year two, 12% in year three and 14% thereafter, with the
remainder accruing at a compounded monthly basis and being added to the maximum
borrowing base. The Company is required to pay an annual maintenance fee of
$210,000 and a monthly commitment fee equal to .5% per annum on the average
unused portion of the maximum borrowings under the Credit Facility. The Company
is also required to pay a letter of credit fee equal to .5% per month on the
aggregate undrawn amount of all outstanding letters of credit.

The Credit Facility imposes certain operating and financial restrictions on
the Company. Such restrictions affect, and in some cases limit or prohibit,
among other things, the ability of the Company to incur additional indebtedness,
repay certain indebtedness prior to its stated maturity, create liens, engage in
mergers and acquisitions, make certain capital expenditures or pay dividends. In
addition to such restrictions, the Company is required to maintain annualized
revenues which exceed certain minimum amounts as specified in the Credit
Facility. Failure to comply with these or any other of the covenants specified
in the Credit Facility constitutes an event of default, at which time all loan
obligations of the Company under this facility would immediately bear interest
at a rate of 18% per annum and the letter of credit fee would increase to .83%
per month. Upon the occurrence and during the continuation of an event of
default, all loan obligations under this facility would become immediately due
and payable at the sole discretion of the Lenders. At September 30, 1997, the
Company was in compliance with the covenants contained in the Credit Facility.

F-13
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
(FORMERLY SPECTRANET INTERNATIONAL)
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6--LONG-TERM DEBT (CONTINUED)
The Credit Facility matures on September 17, 2002. However, the Lenders, at
their sole discretion, may terminate this agreement on September 17, 2000. In
the event that the facility is terminated by the Company prior to the maturity
date, the Company must pay the Lenders a termination fee equal to the greater of
either $1,000,000 or the total interest and letter of credit fees for the
immediate six months preceding the termination date.

In connection with the consummation of the Credit Facility, the Company
granted to the Lenders warrants for the purchase of 800,000 shares of the
Company's common stock (Note 10). The aggregate fair value of these warrants at
their time of grant, as determined by management based upon application of the
Black-Scholes option pricing model, has been recorded as a discount on the
underlying debt. The unamortized portion of the debt discount as of September
30, 1997 totaled $463,513.

NOTE 7--CONVERTIBLE BRIDGE NOTES

During the period from August 9, 1996 through September 30, 1996, the
Company raised $835,000 through the issuance of 6.15% convertible bridge notes
maturing on January 31, 1997. During the period from October 1, 1996 to January
31, 1997, additional funding of $6,941,500 was received through the issuance of
such notes. On January 31, 1997, the aggregate principal balance of such notes
was converted by the holders into 1,555,300 shares of Series C convertible
preferred stock and related common stock warrants (Notes 9 and 10). Simultaneous
to this conversion, accrued interest on the associated notes totaling $116,812
was repaid by the Company to the note holders.

On May 30, 1997, the Company authorized the private placement of up to
$5,000,000 in principal funding through the issuance of 8% subordinated,
convertible bridge notes. As of September 30, 1997, the Company had received
proceeds totaling $405,500 from this financing. Pursuant to the individual note
agreements, the convertible bridge notes were to mature on December 31, 1997,
unless earlier converted or repaid upon the closing of an equity financing by
the Company in excess of $3,000,000. As discussed in Note 12, the convertible
bridge notes outstanding as of September 30, 1997 were converted into shares of
the Company's Series A common stock and related warrants at the conversion rate
of $3.00 per share. In connection with the issuance of such convertible bridge
notes, warrants for the purchase of 33,789 shares of the Company's common stock
were also issued to the note holders (Note 10). It is management's estimate that
the aggregate value of these warrants, based upon application of the
Black-Scholes option pricing model, was insignificant at their time of grant.

NOTE 8--COMMITMENTS

LEASE AND EXECUTORY COMMITMENTS

The Company leases its office space, certain network access facilities and
automobiles under noncancelable operating lease arrangements which expire on
varying dates through fiscal 2002. Certain of the office leases contain rent
escalation clauses which require the Company to pay a pro-rata share of the
lessor's operating expenses for any calendar year which exceeds base year
operating expenses, as defined within the respective agreements.

The Company has procured certain of its property and equipment, including
its Anaheim network central office switching facility, through capital leases
which expire through fiscal 2001. Additionally, the

F-14
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
(FORMERLY SPECTRANET INTERNATIONAL)
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8--COMMITMENTS (CONTINUED)

Company has accounted for certain agreements with the City of Anaheim, as more
fully described below and which extend through fiscal 2027, as both capital
leases and executory contracts in the accompanying financial statements.

Future minimum payments allocated to capital leases, the UTS Agreement (as
defined below) and operating leases are as follows:

<TABLE>
<CAPTION>
CAPITAL UTS OPERATING
FISCAL YEAR LEASES AGREEMENT LEASES
- ------------------------------------------------ -------------- ------------- ------------
<S> <C> <C> <C>
1998............................................ $ 622,813 $ 195,000 $ 374,883
1999............................................ 1,074,460 239,555 381,744
2000............................................ 1,371,615 373,220 125,274
2001............................................ 1,287,294 373,220 102,685
2002............................................ 1,277,228 373,220 18,086
Thereafter...................................... 31,995,203 9,143,890 --
-------------- ------------- ------------
Total minimum lease payments.................... 37,628,613 $ 10,698,105 $ 1,002,672
------------- ------------
------------- ------------
Amount representing interest.................... (30,515,521)
--------------
Present value of minimum lease payments......... $ 7,113,092
--------------
--------------
</TABLE>

Rent expense under noncancelable operating leases was $72,875, $108,429 and
$361,156 during fiscal 1995, 1996 and 1997, respectively, and for the period
from September 1, 1993 (inception) to September 30, 1997 was $589,858.

COMMITMENTS RELATING TO AGREEMENTS WITH THE CITY OF ANAHEIM

During February 1997, the Company and its wholly-owned subsidiary FirstWorld
Anaheim (FWA) entered into a 30-year Universal Telecommunications System
Participation Agreement (the UTS Agreement) with the City of Anaheim, California
(the City), under which FWA has agreed to design, construct and operate a
fiber-optic telecommunications network in cooperation with the City. The UTS
Agreement requires FWA to pay to the City (i) an annual payment in lieu of a
franchise fee based on a percentage of FWA's "adjusted gross revenues," as
defined, related to the Anaheim network, subject to a minimum annual payment of
$1,000,000 for periods after June 30, 1999 through the term of the agreement,
(ii) a percentage of FWA's "net revenues," as defined, derived from the Anaheim
network, (iii) certain of the City's annual operating costs associated with the
UTS Agreement, not to exceed $175,000 per year prior to the commencement of the
third phase of the Anaheim network (as discussed below), and not to exceed
$350,000 per year thereafter, subject to inflationary adjustments, and (iv)
$20,000 per year to support the City's presence on the Internet, subject to
inflationary adjustments. The UTS Agreement also requires the Company to deposit
an amount equal to up to 15% of net revenues derived from the Anaheim network to
maintain a $6,000,000 reserve account for debt service and capital improvements.
Pursuant to the UTS Agreement, the City has been granted an irrevocable option
to purchase all of the issued and outstanding stock of FWA at anytime after July
1, 2012 for its then current appraised fair value, the determination of which is
to be derived by qualified independent appraisers selected by both the Company
and the City, as more specifically defined within the UTS Agreement. Any sale or
issuance of FWA stock can only be made

F-15
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
(FORMERLY SPECTRANET INTERNATIONAL)
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8--COMMITMENTS (CONTINUED)
if such sale or issuance is expressly made subject to the City's purchase
option. Moreover, any sale of the Anaheim network or other sale of substantially
all of FWA's assets can only be made if the City is equitably compensated for
the loss of its future income stream under the UTS Agreement or the buyer
expressly assumes the obligations of FWA under the UTS Agreement.

Simultaneous to the execution of the UTS Agreement, FWA entered into a
30-year Agreement for Use of Operating Property (the Operating Property
Agreement) with the City under which FWA has been granted the exclusive right to
lease 60 of 96 fiber strands contained in an approximate 50 mile loop of fiber
optic cable owned by the City, together with related facilities and rights.
Under the terms of the Operating Property Agreement, the Company is obligated to
make quarterly payments to the City in the amount of $113,862. In addition, the
Company is obligated to pay all costs associated with operating and maintaining
the leased property, including maintenance expenses, taxes, insurance premiums
and pole usage fees. FWA has the right to assign its rights under the Operating
Property Agreement, but will not be released from liability unless the City
expressly consents. FWA also has the right to encumber its interest in the
leased property. FWA's interest in the leased property presently is encumbered
by a leasehold mortgage in favor of the lenders under the Company's Credit
Facility.

Although the Company considers the Operating Property Agreement to be a
capital lease and the UTS Agreement to be an executory contract, certain of the
minimum payments prescribed by the UTS Agreement have been accounted for as
additional minimum capital lease payments. The Operating Property Agreement and
the UTS Agreement were bid, negotiated and consummated simultaneously with each
other. In addition, both agreements have identical 30-year terms and include
certain cross-default provisions. Moreover, the Operating Property Agreement
contains payment terms which are below the fair value of the benefits conferred
by such agreement; whereas, the UTS Agreement contains payment terms which are
above the fair value of the benefits conferred by such agreement. Accordingly,
the Company has allocated the collective payments prescribed by the agreements
between the two contracts based upon the estimated fair value of the benefits
the Company receives under each of the two agreements. Remaining fixed payments
under both agreements approximate $46,959,000 at September 30, 1997. Interest
expense associated with the capital lease totaled $995,434 during fiscal 1997.

Pursuant to the UTS Agreement, FWA is required to meet certain future
performance requirements for the completion of network design and the
commencement of network construction related to certain phases of the city-wide
network. The first phase, which extended service to identified municipal
facilities, was substantially completed in October 1997. The second phase, which
allows service to be extended in the ordinary course of business (i.e., within
six months following execution of a customer service agreement) to commercial,
industrial and governmental customers within certain defined service areas, is
required to be 44% completed by April 1, 1998, and 90% completed by December 31,
1998. The UTS Agreement also requires FWA to commence construction of a
demonstration center in the City's downtown area by August 20, 1998 and to
ensure that such demonstration center is operational by June 30, 1999. The
Company anticipates that the aforementioned performance requirements will be
met. In the event that FWA does not meet the specified performance deadlines
related to completion of the first and second phases of the Anaheim network due
to financial or other reasons, the City may elect to either terminate the
Operating Property Agreement or to immediately exercise its option to purchase
all of the issued and outstanding stock of FWA under the same option terms, as
defined within the UTS Agreement, which

F-16
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
(FORMERLY SPECTRANET INTERNATIONAL)
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8--COMMITMENTS (CONTINUED)
otherwise do not become effective until after July 1, 2012. Any termination of
the Operating Property Agreement would have a material adverse effect on the
Company's business, financial condition and results of operations.

Under the UTS Agreement, the third phase of the Anaheim network, which
allows service to be extended in the ordinary course of business to all
customers within the city, including residential customers, will be commenced
only after the feasibility of the third phase is validated by an independent
consultant's report and financing is arranged. FWA has agreed to cause a
feasibility study with respect to the third phase to be completed no later than
January 1, 2000, and thereafter to provide annual updates to the study if
necessary. If the Company determines not to proceed with the development of the
third phase of the Anaheim network, or if for any reason the principal financing
for the third phase is not funded or construction of the third phase is not
commenced by December 31, 2002, then the City may pursue development of the
third phase on its own.

Pursuant to a Development Fee Arrangement dated simultaneous to the
aforementioned City agreements, for a period of five years, commencing with the
earlier to occur of the closing of the financing for or the commencement of
construction of the first Additional Network (as defined below), the Company
must pay to the City a lump sum development fee for each Additional Network
which the Company develops ($300,000 for each Additional Network financed in the
first year; $200,000 for each Additional Network financed in the second year;
and $100,000 for each Additional Network financed in the third, fourth and fifth
years, which amounts must be paid within thirty days following the closing of
the principal financing for an Additional Network or the commencement of
construction of such Additional Network, whichever occurs first). "Additional
Network" means (a) any expansion of the Anaheim network into one or more
adjacent or nearby cities where FWA enters into a revenue sharing agreement with
any such city, and (b) any separate communications system developed by any other
subsidiary of the Company that holds a Certificate of Public Convenience and
Necessity issued by the Public Utilities Commission and enters into a revenue
sharing agreement with one or more public entities.

OTHER COMMITMENTS

The Company is party to a contract with a long distance carrier pursuant to
which the Company is committed to minimum service fees. Such minimum fees
aggregate $312,500, $1,937,500 and $250,000 during each of fiscal 1998, 1999 and
2000, respectively.

NOTE 9--SHAREHOLDERS' EQUITY (DEFICIT)

In December 1996, the Board of Directors and shareholders of the Company
approved a restatement of the Articles of Incorporation which provided for a
capital restructuring. Under the restated Articles of Incorporation, the Company
is authorized to issue up to 15,000,000 shares of common stock and 5,160,335
shares of preferred stock, of which 134,200 shares are designated Series A
preferred stock, 2,426,135 shares are designated Series B preferred stock and
2,600,000 shares are designated Series C preferred stock, and to fix the powers,
designations, preferences and rights of each series. As discussed in Note 12,
the Company converted the three existing classes of preferred stock and common
stock into shares of newly created Series B common stock on December 30, 1997.

F-17
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
(FORMERLY SPECTRANET INTERNATIONAL)
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9--SHAREHOLDERS' EQUITY (DEFICIT) (CONTINUED)
COMMON STOCK

In connection with the Separation Agreement (Note 1), the Separating
Shareholders received 100 shares of common stock. Consideration for such shares
consisted of the assumption of net liabilities from Lambda Link totaling
$404,621.

In October 1993, the Company issued 2,519,900 shares of common stock as
compensation to the Separating Shareholders and certain employees in the amount
of $2,520.

In March 1994, in connection with a private placement offering, the Company
issued 279,000 shares of common stock at a price of $1.50 per share. In June
1995, these shares were converted into Series B preferred stock.

During the period May 1996 to June 1996, 330,000 shares of common stock were
issued through the exercise of stock options at prices between $.15 and $.25 per
share. Additionally, 396,000 shares of common stock were issued to certain
option holders pursuant to a Board of Directors' resolution which prescribed for
the cancellation of options in favor of purchasing a like number of shares of
common stock at $.25 per share.

During the period November 1996 to August 1997, 106,900 shares of common
stock were issued through the exercise of stock options and warrants at prices
between $.15 and $.50 per share.

SERIES A PREFERRED STOCK

The holders of Series A preferred stock are entitled to cumulative dividends
at the rate of $.20 per share per annum, when, as and if declared by the
Company's Board of Directors. The holders of Series A preferred stock are not
entitled to liquidating distributions. So long as any shares of Series A
preferred stock remain outstanding, no dividends or distributions shall be paid
on any Series B preferred stock or common stock of the Company during any fiscal
year, nor shall any shares of the Series B preferred stock or common stock be
purchased, redeemed, or otherwise acquired for value by the Company until Series
A preferred stock dividends in the total amount of $.20 per share shall have
first been paid or declared and set apart during that fiscal year and any prior
fiscal year in which dividends accumulated but remain unpaid. No dividends have
been declared on Series A preferred stock through September 30, 1997. Cumulative
dividends in arrears on Series A preferred stock aggregate $47,467, or $.40 per
share, as of September 30, 1997. Each share of Series A preferred stock is
convertible, at the option of the holder thereof, at anytime into a one-tenth
share of common stock. The Series A preferred shares shall automatically convert
into one-tenth of a share of common stock upon the closing of a firm commitment
underwritten public offering of the Company's common stock resulting in an
aggregate offering price of not less than $20,000,000 based upon an offering
price per common share of not less than (i) $10.00 for an offering which occurs
prior to December 31, 1998; (ii) $12.50 for an offering which occurs after
December 31, 1998 and on or prior to December 31, 1999; (iii) $15.00 for an
offering which occurs after December 31, 1999 and on or prior to December 31,
2000; or (iv) $17.50 for an offering which occurs after December 31, 2000. Each
share of Series A preferred stock shall also be converted into one-tenth of a
share of common stock upon the affirmative vote of the holders of a majority of
the shares of such series outstanding at the time of vote. The number of common
shares in which Series A preferred stock may be

F-18
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
(FORMERLY SPECTRANET INTERNATIONAL)
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9--SHAREHOLDERS' EQUITY (DEFICIT) (CONTINUED)
converted pursuant to automatic or voluntary events of conversion is subject to
adjustment for customary events of dilution. The Series A preferred shares do
not have any voting rights.

In May 1995, the Company issued 127,601 shares of Series A preferred stock
to employees in exchange for the cancellation of notes and wages payable, which
conversion was made at the rate of $3.33 per share based upon the carrying
amounts of said liabilities.

In January 1996, the Company repurchased 8,934 shares of Series A preferred
stock at their original cost of $3.33 per share through the issuance of a note
payable.

SERIES B CONVERTIBLE PREFERRED STOCK

The holders of Series B preferred stock are entitled to noncumulative
preferred dividends payable when and as declared by the Company's Board of
Directors. No dividends shall be paid on any share of Series B preferred stock
until dividends associated with Series C and Series A preferred stock have been
paid or declared and set apart. No dividends have been declared on Series B
preferred stock through September 30, 1997. In the event of liquidation,
dissolution or winding up of the Company, Series B holders are entitled to
liquidating distributions of $1.50 per share plus an amount equal to $.09 per
share per annum beginning July 1, 1995. Each share of Series B preferred stock
is convertible, at the option of the holder thereof, at anytime into equal
shares of common stock. The Series B preferred shares shall automatically
convert into equal shares of common stock upon the closing of a firm commitment
underwritten public offering of the Company's common stock resulting in an
aggregate offering price of not less than $20,000,000 based upon an offering
price per common share of not less than (i) $10.00 for an offering which occurs
prior to December 31, 1998; (ii) $12.50 for an offering which occurs after
December 31, 1998 and on or prior to December 31, 1999; (iii) $15.00 for an
offering which occurs after December 31, 1999 and on or prior to December 31,
2000; or (iv) $17.50 for an offering which occurs after December 31, 2000. Each
share of Series B preferred stock shall also be converted into equal shares of
common stock upon the affirmative vote of the holders of a majority of the
shares of such series outstanding at the time of vote. The number of common
shares in which Series B preferred stock may be converted pursuant to automatic
or voluntary events of conversion is subject to adjustment for customary events
of dilution. The Series B preferred shares, on an as-converted basis, have equal
voting rights as the Company's common shares.

In June 1995, 279,000 shares of common stock were exchanged for Series B
preferred stock.

During the period January 1995 to September 1995, in connection with a
private placement offering, the Company issued 558,669 shares of Series B
preferred stock at a price of $1.50 per share. Additionally, during the period
October 1995 to January 1996, the Company issued 500,504 shares of Series B
preferred stock at a price of $1.50 per share.

In December 1995, the Company issued 33,334 shares of Series B preferred
stock for the cancellation of a note payable to a relative of the president and
for consulting services received, which conversion was based upon the fair value
of Series B preferred stock of $1.50 per share, the carrying amount of the note
payable and the fair value of the consulting services received.

F-19
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
(FORMERLY SPECTRANET INTERNATIONAL)
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9--SHAREHOLDERS' EQUITY (DEFICIT) (CONTINUED)
During the period January 1996 to June 1996, in connection with a private
placement offering, the Company issued 641,800 shares of Series B preferred
stock at a price of $2.50 per share.

In May 1996, the Company issued 3,333 shares of Series B preferred stock for
the procurement of property and equipment, which conversion was based upon the
fair value of Series B preferred stock of $2.50 per share and the fair value of
the property and equipment received.

SERIES C CONVERTIBLE PREFERRED STOCK

The holders of Series C preferred stock, in preference to the holders of any
other stock of the Company, shall be entitled to preferred dividends at the rate
of $.40 per share per annum or, in the event of liquidation, dissolution or
winding up of the Company, liquidation distributions of $5.00 per share, plus
all accumulated or declared but unpaid dividends. Series C preferred stock
dividends shall be payable only when, as and if declared by the Company's Board
of Directors and shall be noncumulative; provided, however, that after December
31, 1998, the holders of Series C preferred stock shall be entitled to receive
cumulative dividends at the rate of $.40 per share per annum. Such dividends
shall be payable only when, as and if declared by the Board of Directors and
shall accrue after December 31, 1998, whether or not earned. So long as any
shares of Series C preferred stock remain outstanding, no dividends or
distributions shall be paid on the Series B or Series A preferred stock or the
common stock of the Company during any fiscal year, nor shall any shares of the
Series B or Series A preferred stock or the common stock be purchased, redeemed,
or otherwise acquired for value by the Company until Series C preferred stock
dividends in the total amount of $.40 per share shall have first been paid or
declared and set apart during that fiscal year and any prior fiscal year in
which dividends accumulated but remain unpaid. No dividends have been declared
on Series C preferred stock through September 30, 1997. Each share of Series C
preferred stock is convertible, at the option of the holder thereof, at anytime
into equal shares of common stock. The Series C preferred shares shall
automatically convert into equal shares of common stock upon the closing of a
firm commitment underwritten public offering of the Company's common stock
resulting in an aggregate offering price of not less than $20,000,000 based upon
an offering price per common share of not less than (i) $10.00 for an offering
which occurs prior to December 31, 1998; (ii) $12.50 for an offering which
occurs after December 31, 1998 and on or prior to December 31, 1999; (iii)
$15.00 for an offering which occurs after December 31, 1999 and on or prior to
December 31, 2000; or (iv) $17.50 for an offering which occurs after December
31, 2000. Each share of Series C preferred stock shall also be converted into
equal shares of common stock upon the affirmative vote of the holders of a
majority of the shares of such series outstanding at the time of vote. The
number of common shares in which Series C preferred stock may be converted
pursuant to automatic or voluntary events of conversion is subject to adjustment
for customary events of dilution, as well as certain additional anti-dilutive
adjustments as defined in the Company's Articles of Incorporation. The Series C
preferred shares, on an as-converted basis, have equal voting rights as the
Company's common shares.

Pursuant to the Articles of Incorporation, the Company shall not, without
first obtaining the affirmative vote or written consent of the holders of not
less than two-thirds of the outstanding shares of Series C preferred stock, (i)
pay or declare dividends on common stock or repurchase any shares of capital
stock of the corporation; (ii) take any action to materially amend the Company's
Articles of Incorporation or Bylaws; (iii) authorize or issue shares of capital
stock having preference equal to or superior to that of

F-20
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
(FORMERLY SPECTRANET INTERNATIONAL)
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9--SHAREHOLDERS' EQUITY (DEFICIT) (CONTINUED)
the Series C preferred shares; or (iv) effect certain mergers or consolidations
of the Company, each as defined within the Articles of Incorporation.

During January 1997, in connection with a private placement offering, the
Company issued 2,600,000 shares of Series C preferred stock, consisting of
1,044,700 shares issued for cash proceeds totaling $4,528,862, net of placement
agent commissions and related fees, and 1,555,300 shares issued through the
retirement of convertible bridge notes (Note 7). In connection with this
offering, the holders of Series C shares also received warrants for the purchase
of 520,000 shares of common stock; additionally, warrants to purchase 233,118
shares of common stock were issued to certain financial advisors (Note 10).

NOTE 10--WARRANTS AND STOCK OPTIONS

WARRANTS

In connection with the January 1994 private placement of common stock, the
Company issued warrants to purchase 139,494 shares of common stock at $1.50 per
share. During June 1995, these warrants were canceled and exchanged for warrants
to purchase 139,494 shares of Series B preferred stock at a price of $1.50 per
share, which warrants expire in April 1999 and contain customary adjustments to
protect against dilution. It is management's estimate that the aggregate fair
value of these warrants was insignificant at the time of grant. At September 30,
1997, all of these warrants remain outstanding.

In connection with the January 1997 private placement of Series C preferred
stock, the Company issued warrants for the purchase of 520,000 shares of common
stock to the investors. Such warrants have an exercise price of $5.00 per share,
a term of five years and are subject to customary adjustments to protect against
dilution, as well as certain additional anti-dilutive adjustments as defined in
the warrant agreements. Based upon application of the Black-Scholes option
pricing model, it is management's estimate that the aggregate fair value of such
warrants was approximately $16,000 at the time of grant, which amount has been
allocated to the warrants. At September 30, 1997, all of these warrants remain
outstanding.

In connection with the January 1997 private placement of Series C preferred
stock, the Company also issued to certain financial advisors warrants to
purchase 218,118 and 15,000 shares of common stock at exercise prices of $5.00
and $.50, respectively, all of which have terms of five years and contain
customary adjustments to protect against dilution. Based upon application of the
Black-Scholes option pricing model, it is management's estimate that the
aggregate fair value of such warrants was approximately $10,000 at the time of
grant, which amount has been recorded as a non-cash equity issuance cost related
to the Series C preferred stock placement. During March 1997, 5,000 of the $.50
warrants were exercised for proceeds totaling $2,500. At September 30, 1997, all
of the remaining warrants remain outstanding.

F-21
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
(FORMERLY SPECTRANET INTERNATIONAL)
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10--WARRANTS AND STOCK OPTIONS (CONTINUED)

Simultaneous to the above Series C equity transactions, the Company issued a
warrant for the purchase of 800,000 shares of common stock to a single investor.
The warrant has a term of five years and vests at the rate of 25% per year
beginning in January 1998. Pursuant to the warrant agreement, the initial
exercise price per underlying common share is $4.75. However, the warrant
contains a complex anti-dilution provision pursuant to which the number of
underlying common shares may be increased based upon the weighted average
issuance price of equity securities issued by the Company prior to the earliest
of (i) April 1, 1999, (ii) the death of the investor, and (iii) a public
offering of securities by the Company. The warrant also prescribes a formula
under which the exercise price per underlying common share is reduced in
successive years of the warrant agreement, which reduction is further affected
by the number of warrant shares previously exercised pursuant to this agreement.
This warrant was issued for cash proceeds totaling $200,000, which management
considers to be the fair value of this warrant at the time of grant. At
September 30, 1997, no shares have been exercised under this warrant agreement.
As discussed in Note 12, the terms of this warrant were amended on December 30,
1997.

During January 1997, the Company issued to certain legal service providers
warrants to purchase 19,000 and 5,000 shares of common stock at exercise prices
of $.50 and $5.00, respectively. Such warrants have terms of five years and
contain customary adjustments to protect against dilution. It is management's
estimate that the aggregate fair value of these warrants, determined based upon
application of the Black-Scholes option pricing model, was insignificant at
their time of grant. At September 30, 1997, all of these warrants remain
outstanding.

During the period July 1997 to September 1997, in connection with the
issuance of convertible bridge notes, warrants for the purchase of 33,789 shares
of common stock were issued to the note holders. Such warrants, which expire in
July 2002, have an exercise price of $6.00 per share and contain customary
adjustments to protect against dilution. It is management's estimate that the
aggregate fair value of these warrants, determined based upon application of the
Black-Scholes option pricing model, was insignificant at their time of grant. At
September 30, 1997, all of these warrants remain outstanding.

During August 1997, in connection with the attainment of short-term bridge
financing, the Company issued to the lender warrants to purchase 125,000 shares
of common stock. During September 1997, in connection with the execution of a
new loan agreement, warrants to purchase an additional 175,000 common shares
were issued to the lender. Such warrants have an exercise price of $6.00 per
share, a term of seven years and are subject to customary adjustments to protect
against dilution, as well as certain additional anti-dilutive adjustments as
defined in the warrant agreements. The aggregate fair value of the warrants at
their date of grant, which was estimated by management to be $115,900 with
respect to the warrants issued during August 1997 and $162,260 with respect to
the warrants issued during September 1997, based upon application of the
Black-Scholes option pricing model, has been recorded as a discount on the
underlying debt. As discussed in Note 5, the unamortized debt discount
associated with those warrants issued in August 1997 was written off on
September 17, 1997 as a result of a debt extinguishment. At September 30, 1997,
all of these warrants remain outstanding.

During September 1997, in connection with the attainment of the Company's
Credit Facility, the Company issued to the lender warrants to purchase 800,000
shares of common stock. Such warrants have an exercise price of $6.00 per share,
a term of five years and are subject to customary adjustments to

F-22
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
(FORMERLY SPECTRANET INTERNATIONAL)
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10--WARRANTS AND STOCK OPTIONS (CONTINUED)
protect against dilution, as well as certain additional anti-dilutive
adjustments as defined in the warrant agreement. The fair value of these
warrants at the time of grant, which was estimated by management to be $469,600
based upon application of the Black-Scholes option pricing model, has been
recorded as a discount on the underlying debt. In connection with the
consummation of this credit facility, the Company also issued to certain
financial advisors warrants to purchase 83,400 shares of common stock, which
warrants have an exercise price of $6.00 and a term of five years. The aggregate
fair value of these warrants at the time of grant, which was estimated by
management to be $27,200 based upon application of the Black-Scholes option
pricing model, has been recorded as a non-cash deferred financing cost. At
September 30, 1997, all of the warrants issued in connection with this
transaction remain outstanding.

STOCK OPTIONS

The Company has a 1995 Incentive Stock Option Plan (the 1995 Plan) and a
1997 Stock Plan (the 1997 Plan) (collectively, the Plans) under which stock
options or stock purchase rights to acquire an aggregate of 1,500,000 shares and
1,000,000 shares, respectively, of common stock may be granted to employees and
directors of the Company, as well as to non-employee consultants of the Company
under the 1997 Plan. As of September 30, 1997, 2,068,100 common shares remain
reserved for issuance under the Plans. Both plans provide for the granting of
incentive stock options (within the meaning of Section 422A of the Internal
Revenue Code) while the 1997 Plan also provides for the granting of
non-statutory stock options. Additionally, stock purchase rights may also be
granted under the 1997 Plan.

The terms of stock options granted under the Plans are determined by the
Board of Directors. Stock options may be granted for periods of up to ten years
at a price per share not less than the fair market value of the Company's common
stock at the date of grant for incentive stock options and not less than 85% of
the fair market value of the Company's common stock at the date of grant for
non-statutory stock options. In the case of incentive and non-statutory stock
options granted under Plans to employees, directors or consultants who, at the
time of grant of such options, own stock representing more than 10% of the
voting power of all classes of stock of the Company, the exercise price shall be
no less than 110% of the fair market value of the Company's common stock at the
date of grant. Additionally, the term of incentive stock option grants under the
Plans is limited to five years if the grantee owns in excess of 10% of the
voting power of all classes of stock of the Company at the time of grant.
Options granted under the Plans generally vest to the option holder ratably over
a period of four to five years beginning on the grant date.

The terms of stock purchase rights granted under the 1997 Plan are
determined by the Board of Directors. Stock purchase rights may be issued either
alone, in addition to, or in tandem with other awards granted under the 1997
Plan and/or cash awards made outside of the 1997 Plan. Through September 30,
1997, no such purchase rights have been granted by the Company.

The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic value method and provides pro forma
disclosures of net loss as if the minimum value method had been applied in
measuring compensation expense. Had compensation cost for the Company's
stock-based compensation plans been determined based on the minimum value method
at the grant dates for awards under this plan consistent with the method
prescribed by Statement of Financial Accounting

F-23
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
(FORMERLY SPECTRANET INTERNATIONAL)
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10--WARRANTS AND STOCK OPTIONS (CONTINUED)
Standards No. 123, the Company's net loss would have been increased to the pro
forma amounts indicated below:

<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
--------------------------
1996 1997
------------ ------------
<S> <C> <C>
Net loss:
As reported..................................................... $ 3,856,192 $ 9,552,838
Pro forma....................................................... $ 3,859,992 $ 9,564,128
</TABLE>

The minimum value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions used for grants during fiscal 1996 and 1997: dividend yield of 0.0%
for both periods; volatility of 0.0% for both periods; risk-free interest rates
of 5.79% and 6.07%; and an expected life of 5.0 years for both periods. The
weighted average fair value of options granted during fiscal 1996 and 1997 was
approximately $.06 and $.09 per option, respectively.

Stock option transactions under the Plans during the three fiscal years
ended September 30, 1997, all of which relate to employee transactions, are
summarized as follows:

<TABLE>
<CAPTION>
SHARES WEIGHTED
UNDERLYING AVERAGE
OPTIONS EXERCISE PRICE
---------- ---------------
<S> <C> <C>
Outstanding at September 30, 1994.................................. --
Granted............................................................ 763,333 $ .15
Exercised.......................................................... --
Canceled........................................................... --
----------
Outstanding at September 30, 1995.................................. 763,333 $ .15
Granted............................................................ 788,667 $ .25
Exercised.......................................................... (330,000) $ .22
Canceled........................................................... (432,000) $ .21
----------
Outstanding at September 30, 1996.................................. 790,000 $ .18
Granted............................................................ 489,400 $ .82
Exercised.......................................................... (101,900) $ .22
Canceled........................................................... (138,700) $ .48
----------
Outstanding at September 30, 1997.................................. 1,038,800 $ .44
----------
----------
</TABLE>

F-24
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
(FORMERLY SPECTRANET INTERNATIONAL)
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10--WARRANTS AND STOCK OPTIONS (CONTINUED)
The following table summarizes information about options outstanding at
September 30, 1997:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- --------------------------
OUTSTANDING WEIGHTED- AVERAGE WEIGHTED- EXERCISABLE WEIGHTED-
RANGE OF AS OF REMAINING AVERAGE AS OF AVERAGE
EXERCISE SEPTEMBER 30, CONTRACTUAL LIFE EXERCISE SEPTEMBER 30, EXERCISE
PRICES 1997 (IN YEARS) PRICE 1997 PRICE
- ----------- ------------- ----------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
$ .15 - .25 626,000 5.1 $ .19 485,800 $ .18
$ .50 362,300 8.9 $ .50 100,560 $ .50
$ 3.20 50,500 9.7 $ 3.20 2,800 $ 3.20
------------- -------------
1,038,800 6.6 $ .44 589,160 $ .25
------------- -------------
------------- -------------
</TABLE>

As discussed in Note 12, the Company's Board of Directors approved a
repricing of stock options in December 1997, pursuant to which the exercise
price of stock options designated at $3.20 per share was reduced to $3.00 per
share.

NOTE 11--INCOME TAXES

Deferred tax assets (liabilities) are comprised of the following:

<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1996 1997
------------- -------------
<S> <C> <C>
Net operating loss carryforwards................................ $ 2,187,907 $ 4,733,931
Accrued employee costs.......................................... 100,000 39,834
Depreciation and amortization................................... (19,845) (78,845)
------------- -------------
2,268,062 4,694,920
Valuation allowance............................................. (2,268,062) (4,694,920)
------------- -------------
Deferred tax assets (liabilities), net.......................... $ -- $ --
------------- -------------
------------- -------------
</TABLE>

As of September 30, 1997, the Company has Federal and state net operating
loss carryforwards of approximately $14,810,000 and $10,798,000, respectively,
which amounts expire beginning in fiscal 2009 and fiscal 1999, respectively. As
a result of the capital transactions described in Note 12, which resulted in a
change of ownership as defined by Section 382 of the Internal Revenue Code, the
Company's utilization of such net operating loss carryforwards will be subject
to an annual limitation of approximately $878,000 for both Federal and state tax
purposes, the effect of which has been reflected in the summary of deferred tax
assets above. Additionally, if the Company is able to recognize built-in gains
in the future, the annual utilization rate of the net operating losses would be
increased. If the Company is able to recognize built-in losses, they will be
subject to the annual utilization limitation when recognized.

Based upon the lack of prior earnings history of the Company and based upon
available evidence, management has recorded a full valuation allowance for the
benefit of deferred tax assets. No income tax

F-25
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
(FORMERLY SPECTRANET INTERNATIONAL)
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11--INCOME TAXES (CONTINUED)
provision or benefit was recorded during fiscal 1995, 1996 or 1997, or for the
period from September 1, 1993 (inception) to September 30, 1997, due to the
cumulative net losses of the Company.

NOTE 12--SUBSEQUENT EVENTS

In October 1997, the Company entered into a three-year network services
agreement with a provider of voicemail and data services. Future minimum
payments under this agreement, which extend through October 2000, aggregate
$56,670, $239,040, $286,560 and $23,880 during each of fiscal 1998, 1999, 2000
and 2001, respectively. Simultaneous to the consummation of this agreement, the
Company granted a three-year, $150,000 unsecured promissory note to the vendor
as payment for certain up-front fees associated with this agreement. Aggregate
principal and interest payments due under this promissory note total $10,800,
$48,600, $109,365 and $31,455 during fiscal 1998, 1999, 2000 and 2001,
respectively. Also in October 1997, the Company entered into a four-year
agreement with a provider of data processing and billing services, under which
future minimum payments aggregate $150,000 during each of fiscal 1998, 1999,
2000 and 2001.

In December 1997, the Company's Board of Directors approved a repricing of
stock options whereby the exercise price of all outstanding stock options
granted under the Company's Plans was reduced to $3.00 per share, if previously
in excess of such amount.

On December 30, 1997, the Company consummated a private placement of equity
securities with Colorado Spectra 3, LLC (Spectra 3) and Enron Capital & Trade
Resources Corp. (Enron). The Company issued 5,000,000 shares of newly created
Series A common stock to each of Spectra 3 and Enron at an issue price of $3.00
per share pursuant to a common stock purchase agreement by and among the
Company, Enron, Spectra 3 and the holders (the Noteholders) of $405,500 in
principal amount of the Company's convertible subordinated bridge notes (Note
7). The Company also issued an aggregate of 135,164 shares of Series A common
stock to the Noteholders upon the automatic conversion of the bridge notes
pursuant to the terms thereof at a conversion price of $3.00 per share.
Aggregate proceeds from this offering, exclusive of the conversion of the bridge
notes, totaled approximately $26,330,000, net of offering commissions and
certain other advisory fees paid in connection with the consummation of this
equity placement. The Company received the gross proceeds from this offering on
January 6, 1998, simultaneous to which the related offering costs were paid. In
connection with the aforementioned placement, the Company also issued to Spectra
3 and Enron warrants to purchase 5,000,000 shares each of newly created Series B
common stock and to the Noteholders warrants to purchase an aggregate of 135,164
shares of such Series B common stock at $3.00 per share. The number of shares of
Series B common stock and exercise price of the warrants are subject to
customary adjustments from time to time as stipulated in the warrant agreements.
Such warrants may be exercised at any time prior to the first to occur of (i)
December 30, 2004; (ii) the merger of the Company with or into another entity in
which the shareholders of the Company immediately prior to the merger own less
than 50% of the voting securities of the surviving entity immediately following
the merger; and (iii) the sale by the Company of all or substantially all of its
assets. It is management's estimate that the aggregate fair value of such
warrants approximates $9,628,000, based upon application of the Black-Scholes
option pricing model. The common stock purchase agreement, as amended, also
contains an option which grants Spectra 3 and Enron the right to invest an
additional $20,000,000 in the aggregate on the same terms and conditions
applicable to their

F-26
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
(FORMERLY SPECTRANET INTERNATIONAL)
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12--SUBSEQUENT EVENTS (CONTINUED)
purchases of Series A common stock as described above, except that any
additional shares of common stock to be acquired would be Series B common stock.
Such option is exercisable through the earlier of (i) June 9, 1998; or (ii) the
closing of a high yield debt offering by the Company.

Simultaneous to the equity investment described above, the Company (i)
converted the three existing classes of preferred stock into common stock in
accordance with the automatic conversion provision of its existing charter, in
order to simplify the Company's capital structure and to eliminate the rights,
preferences and privileges of the preferred stock; (ii) amended its Articles of
Incorporation to substantially increase the Company's authorized capital to
allow for the aforementioned equity transaction and to provide flexibility for
future anticipated financings; and (iii) amended its Articles of Incorporation
to designate two series of common stock, with the investors in the
aforementioned equity transaction receiving Series A common stock and all then
existing shares of common stock (including common stock issued upon conversion
of the existing preferred stock) being designated as Series B common stock. The
Series A common stock and Series B common stock are identical in all material
respects, except that the Series A common stock possess ten votes per share on
all matters subject to a vote of shareholders while the Series B common stock
possess one vote per share.

In connection with the above transactions, the Company entered into separate
management consulting services agreements with an affiliate of Spectra 3 and
Enron whereby such parties will provide general management consulting services
to the Company for a period of three years beginning January 1, 1998. Pursuant
to such agreements, the Company will be required to pay to each party consulting
fees totaling $500,000 per annum.

Simultaneous to the above private placement and related transactions, that
certain warrant for the purchase of 800,000 shares of common stock, as
originally granted by the Company to a single investor (an affiliate of Spectra
3) on January 31, 1997 (Note 10), was amended whereby the number of shares
purchasable under the warrant was set at 2,110,140 shares of Series B common
stock with an exercise price of $1.80 per share, as opposed to the 2,250,000
shares of Series B common stock with an exercise at $1.69 per share as would
have been purchasable following the aforementioned equity transactions pursuant
to the terms of the original warrant agreement. The warrant was amended in order
to fix the number of shares purchasable under the original warrant agreement and
to eliminate any further adjustment to the number of underlying Series B common
shares purchasable as a result of future equity issuances. This warrant, as
amended, remains subject to certain customary adjustments to protect against
dilution.

On January 29, 1998, SpectraNet International changed its name to FirstWorld
Communications, Inc.

On March 5, 1998, FirstWorld Orange Coast (FWOC), a wholly-owned subsidiary
of the Company, and The Irvine Company entered into two agreements regarding
FWOC's development of a network to serve certain areas that have been or are
planned to be developed by The Irvine Company (the Irvine Network). The Company
has guaranteed the payment obligations of FWOC under each of such agreements.

Pursuant to an Agreement for Lease of Telecommunications Conduit dated as of
March 5, 1998 (the Conduit Lease), FWOC leases from The Irvine Company space
within two underground telecommunications tubes (the Conduit), and, in
connection therewith, has received the non-exclusive right to use undivided
space within the pull boxes serving such Conduit (collectively, the Leased
Premises). The

F-27
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
(FORMERLY SPECTRANET INTERNATIONAL)
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12--SUBSEQUENT EVENTS (CONTINUED)
Conduit Lease applies to (i) an existing Conduit system within certain
already-developed areas in the Irvine Spectrum and (ii) Conduit to be
constructed in the future in the as yet undeveloped areas of the Irvine
Spectrum. The Irvine Company may also install Conduit in other areas it may
develop in the cities of Irvine, Newport Beach and Tustin, and in unincorporated
areas of Orange County, and such areas may in the future be incorporated into
the Conduit Lease upon the mutual agreement of the parties (Additional Areas).
The term of the Conduit Lease runs through December 31, 2027.

The Conduit Lease obligates FWOC to install fiber optic cable (Cable) in the
Conduit pursuant to a phasing plan. A phase is completed when sufficient Cable
has been installed to enable FWOC to connect and provide service (for that
portion of the Irvine Network) to property abutting the Conduit. Upon
termination of the agreement, the Cable will be owned by The Irvine Company. If
FWOC fails to complete installation of the required Conduit within 18 months
following March 5, 1998, The Irvine Company may, until such installation is
completed, terminate the Conduit Lease.

FWOC is obligated to make quarterly rent payments to The Irvine Company
based upon its "adjusted gross revenue", as defined, from the Irvine Network. In
addition, FWOC is obligated to pay all costs associated with its lease,
operation, maintenance, repair and use of the Leased Premises, including
maintenance expenses, taxes and insurance premiums. Any assignment of FWOC's
rights under the Conduit Lease and any sale of a controlling interest in FWOC
require The Irvine Company's prior approval, and The Irvine Company has a right
of first refusal in the event of any such proposed sale.

Concurrently with the execution of the Conduit Lease, FWOC and The Irvine
Company executed a Telecommunications System License Agreement (the License
Agreement) which provides FWOC, with some exceptions, with the right and
obligation to provide telecommunications services to (i) the 106 buildings
currently owned by The Irvine Company in the Irvine Spectrum area, (ii)
commercial, industrial and retail buildings in the future owned by The Irvine
Company in the Irvine Spectrum, and (iii) under certain circumstances in The
Irvine Company's discretion, similar buildings located in the Additional Areas
and other locations in California.

The License Agreement provides FWOC with the right to install, maintain,
operate, replace and remove Cable and associated communications equipment
(Equipment) in, as well as access rights to, such buildings, subject to the
rights of The Irvine Company's tenants and to reasonable requirements and
procedures imposed by The Irvine Company. Except with respect to buildings that
are leased to a single tenant, The Irvine Company is required to provide FWOC
with a reasonable amount of equipment room space in each building, sufficient to
enable FWOC to install Cable and Equipment and deliver services. FWOC's rights
to a building are non-exclusive, meaning that The Irvine Company can grant
similar licenses to other service providers. Although all the Cable becomes the
property of The Irvine Company upon termination of the License Agreement, FWOC
has the right to remove and retain ownership of the Equipment, subject to The
Irvine Company's election to purchase the Equipment at a price to be negotiated
by the parties.

F-28
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
(FORMERLY SPECTRANET INTERNATIONAL)
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12--SUBSEQUENT EVENTS (CONTINUED)
Subject to certain qualifications, FWOC will have the obligation to provide
telecommunications services to any tenant who wishes to subscribe with FWOC for
those services, and FWOC is required to install Cable and Equipment in that
tenant's building if FWOC owns or leases Conduit located within 1,000 feet of
that building. Under certain circumstances, FWOC may be required to provide
completion and performance bonds to The Irvine Company in connection with that
work.

Whenever FWOC is the first competitive access provider to a building, it is
required to install a building entrance conduit system (which connects the
building to the street access point) (a BECS), with a capacity equal to 200% of
the capacity required by FWOC to service the building. The Irvine Company can
grant other providers the right to use that BECS, but must pay or cause that
provider to pay FWOC 50% of FWOC's cost of installing the BECS, which costs are
subject to increase based on a CPI calculation. Where a BECS already exists, The
Irvine Company must make any excess capacity therein available to FWOC.

NOTE 13--ADDITIONAL SUBSEQUENT EVENTS

On March 17, 1998, the Company received a firm, written commitment from
Spectra 3 and Enron to invest, pursuant to that certain option held by Spectra 3
and Enron as described in Note 12, an additional $20,000,000 in the aggregate
for the purchase of 6,666,666 shares of Series B common stock and related Series
B common stock warrants concurrently with the closing of a high yield debt
offering by the Company, provided that such offering is consummated on or before
April 20, 1998.

On March 17, 1998, that certain management consulting services agreement
entered into by and among the Company and an affiliate of Spectra 3, as
described in Note 12, was amended, whereby the consulting fee payable by the
Company to the affiliate pursuant to such agreement was increased from $500,000
per annum to $620,000 per annum, retroactive to January 1, 1998.

F-29
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED BALANCE SHEET (UNAUDITED)

<TABLE>
<CAPTION>
JUNE 30, 1998
--------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................................................... $ 105,621,691
Marketable securities........................................................................... 145,425,182
Interest receivable............................................................................. 2,223,323
Accounts receivable............................................................................. 299,863
Prepaid expenses................................................................................ 381,532
Other current assets............................................................................ 23,534
--------------
Total current assets.......................................................................... 253,975,125

Property and equipment, net....................................................................... 30,847,342
Deferred financing costs, net..................................................................... 828,117
Other assets, net................................................................................. 402,396
--------------
$ 286,052,980
--------------
--------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................................ $ 2,545,666
Accrued interest................................................................................ 1,118,091
Accrued employee costs.......................................................................... 210,099
Other accrued expenses.......................................................................... 281,477
Current portion of long-term debt............................................................... 8,643
Current portion of capital lease obligations.................................................... 820,132
--------------
Total current liabilities..................................................................... 4,984,108
Long-term debt.................................................................................... 157,934
Senior discount notes............................................................................. 236,128,267
Capital lease obligations......................................................................... 6,066,232
--------------
Total liabilities............................................................................. 247,336,541
--------------
Commitments
Stockholders' equity:
Preferred stock, $.0001 par value, 10,000,000 shares authorized at June 30, 1998; no shares
issued or outstanding --
Common stock, voting, $.0001 par value, 100,000,000 shares authorized at June 30, 1998:
Series A, 10,135,164 shares designated at June 30, 1998; 10,135,164 shares issued and
outstanding.................................................................................. 1,014
Series B, 89,864,836 shares designated at June 30, 1998; 15,913,208 shares issued and
outstanding.................................................................................. 1,591
Additional paid-in capital...................................................................... 45,594,720
Warrants........................................................................................ 31,963,295
Stockholder receivables......................................................................... (96,500)
Deficit accumulated during development stage.................................................... (38,747,681)
--------------
Total stockholders' equity.................................................................... 38,716,439
--------------
$ 286,052,980
--------------
--------------
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

F-30
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
PERIOD FROM
NINE MONTHS ENDED JUNE 30, SEPTEMBER 1, 1993
----------------------------- (INCEPTION) TO
1997 1998 JUNE 30, 1998
------------- -------------- -----------------
<S> <C> <C> <C>
Service revenue................................................. $ -- $ 649,353 $ 1,145,219
Other revenue................................................... 114,368 10,000 220,715
------------- -------------- -----------------
114,368 659,353 1,365,934
------------- -------------- -----------------
Costs and expenses:
Network development and operations............................ 3,186,507 5,497,316 10,563,774
Selling, general and administrative........................... 2,806,044 4,756,496 13,081,400
Depreciation and amortization................................. 392,720 1,840,639 2,477,459
------------- -------------- -----------------
6,385,271 12,094,451 26,122,633
------------- -------------- -----------------
Loss from operations (6,270,903) (11,435,098) (24,756,699)
Other income (expense):
Interest income............................................... 143,447 3,247,160 3,405,361
Interest expense.............................................. (241,772) (11,071,636) (12,560,996)
------------- -------------- -----------------
Loss before extraordinary item.................................. (6,369,228) (19,259,574) (33,912,334)
Extraordinary item - extinguishment of debt..................... -- (4,730,667) (4,835,347)
------------- -------------- -----------------
Net loss........................................................ $ (6,369,228) $ (23,990,241) $ (38,747,681)
------------- -------------- -----------------
------------- -------------- -----------------
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

F-31
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED JUNE 30, 1998 (UNAUDITED)

<TABLE>
<CAPTION>
SERIES C
SERIES A SERIES B CONVERTIBLE
COMMON STOCK COMMON STOCK ADDITIONAL PREFERRED STOCK
------------------------- -------------------------- PAID-IN --------------------------
SHARES AMOUNT SHARES AMOUNT CAPITAL SHARES AMOUNT
----------- ------------ ----------- ------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30,
1997................... -- $ -- -- $ -- $ -- 2,600,000 $ 12,279,362
Exercise of options to
purchase common stock
October 1997 to
December 1997.......... -- -- -- -- -- -- --
Issuance of Series A
common stock with
warrants to purchase
10,135,164 shares of
Series B common stock,
net of offering costs
of $3,863,691 -
December 30, 1997 ..... 10,135,164 16,913,809 -- -- -- -- --
Conversion of Series C
preferred stock, Series
B preferred stock,
Series A preferred
stock and common stock
to Series B common
stock - December 30,
1997; as follows:
Series C preferred
stock; conversion
ratio of 1.39:1,
including
anti-dilutive
adjustments.......... -- -- 3,621,120 12,279,362 -- (2,600,000) (12,279,362)
Series B preferred
stock and common
stock; conversion
ratio of 1:1......... -- -- 5,545,638 3,486,426 -- -- --
Series A preferred
stock; conversion
ratio of 1:10........ -- -- 11,867 395,162 -- -- --
Issuance of Series B
common stock with
warrants to purchase
6,666,666 shares of
Series B common stock,
net of offering costs
of $1,800,000 - April
13, 1998............... -- -- 6,666,666 12,466,665 -- -- --
Issuance of warrants to
purchase 3,713,094
shares of Series B
common stock in
connection with the
issuance of 13% Senior
Discount Notes......... -- -- -- -- -- -- --
Exercise of options to
purchase Series B
common stock - April
1998 to June 1998...... -- -- 67,917 55,901 -- -- --
Establishment of $.0001
par value for Series A
and B common stock in
connection with
Delaware
reincorporation - June
26, 1998............... -- (16,912,795) -- (28,681,925) 45,594,720 -- --
Net loss for the
nine-month period ended
June 30, 1998.......... -- -- -- -- -- -- --
----------- ------------ ----------- ------------- ------------ ----------- -------------
Balance at June 30,
1998................... 10,135,164 $ 1,014 15,913,208 $ 1,591 $ 45,594,720 -- $ --
----------- ------------ ----------- ------------- ------------ ----------- -------------
----------- ------------ ----------- ------------- ------------ ----------- -------------

<CAPTION>
SERIES B SERIES A
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
------------------------- ---------------------- ----------------------- STOCKHOLDER
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT WARRANTS RECEIVABLES
----------- ------------ ---------- ---------- ----------- ---------- ------------ -------------
<S> <C> <C>
Balance at September 30,
1997................... 2,016,638 $ 3,670,060 118,667 $ 395,162 3,262,900 $ (226,984) $ 1,000,960 $ (96,500)
Exercise of options to
purchase common stock
October 1997 to
December 1997.......... -- -- -- -- 266,100 43,350 -- --
Issuance of Series A
common stock with
warrants to purchase
10,135,164 shares of
Series B common stock,
net of offering costs
of $3,863,691 -
December 30, 1997 ..... -- -- -- -- -- -- 9,628,000 --
Conversion of Series C
preferred stock, Series
B preferred stock,
Series A preferred
stock and common stock
to Series B common
stock - December 30,
1997; as follows:
Series C preferred
stock; conversion
ratio of 1.39:1,
including
anti-dilutive
adjustments.......... -- -- -- -- -- -- -- --
Series B preferred
stock and common
stock; conversion
ratio of 1:1......... (2,016,638) (3,670,060) -- -- (3,529,000) 183,634 -- --
Series A preferred
stock; conversion
ratio of 1:10........ -- -- (118,667) (395,162) -- -- -- --
Issuance of Series B
common stock with
warrants to purchase
6,666,666 shares of
Series B common stock,
net of offering costs
of $1,800,000 - April
13, 1998............... -- -- -- -- -- -- 6,333,335 --
Issuance of warrants to
purchase 3,713,094
shares of Series B
common stock in
connection with the
issuance of 13% Senior
Discount Notes......... -- -- -- -- -- -- 15,001,000 --
Exercise of options to
purchase Series B
common stock - April
1998 to June 1998...... -- -- -- -- -- -- -- --
Establishment of $.0001
par value for Series A
and B common stock in
connection with
Delaware
reincorporation - June
26, 1998............... -- -- -- -- -- -- -- --
Net loss for the
nine-month period ended
June 30, 1998.......... -- -- -- -- -- -- -- --
----------- ------------ ---------- ---------- ----------- ---------- ------------ -------------
Balance at June 30,
1998................... -- $ -- -- $ -- -- $ -- $ 31,963,295 $ (96,500)
----------- ------------ ---------- ---------- ----------- ---------- ------------ -------------
----------- ------------ ---------- ---------- ----------- ---------- ------------ -------------

<CAPTION>
DEFICIT
ACCUMULATED
DURING TOTAL
DEVELOPMENT STOCKHOLDERS'
STAGE EQUITY
-------------- --------------
Balance at September 30,
1997................... $(14,757,440) $ 2,264,620
Exercise of options to
purchase common stock
October 1997 to
December 1997.......... -- 43,350
Issuance of Series A
common stock with
warrants to purchase
10,135,164 shares of
Series B common stock,
net of offering costs
of $3,863,691 -
December 30, 1997 ..... -- 26,541,809
Conversion of Series C
preferred stock, Series
B preferred stock,
Series A preferred
stock and common stock
to Series B common
stock - December 30,
1997; as follows:
Series C preferred
stock; conversion
ratio of 1.39:1,
including
anti-dilutive
adjustments.......... -- --
Series B preferred
stock and common
stock; conversion
ratio of 1:1......... -- --
Series A preferred
stock; conversion
ratio of 1:10........ -- --
Issuance of Series B
common stock with
warrants to purchase
6,666,666 shares of
Series B common stock,
net of offering costs
of $1,800,000 - April
13, 1998............... -- 18,800,000
Issuance of warrants to
purchase 3,713,094
shares of Series B
common stock in
connection with the
issuance of 13% Senior
Discount Notes......... -- 15,001,000
Exercise of options to
purchase Series B
common stock - April
1998 to June 1998...... -- 55,901
Establishment of $.0001
par value for Series A
and B common stock in
connection with
Delaware
reincorporation - June
26, 1998............... -- --
Net loss for the
nine-month period ended
June 30, 1998.......... (23,990,241) (23,990,241)
-------------- --------------
Balance at June 30,
1998................... $(38,747,681) $ 38,716,439
-------------- --------------
-------------- --------------
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

F-32
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>
PERIOD FROM
NINE MONTHS ENDED JUNE SEPTEMBER 1,
30 1993
------------------------ (INCEPTION) TO
1997 1998 JUNE 30, 1998
---------- ------------ ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................................... $(6,369,228) $(23,990,241) $(38,747,681)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization............................................ 392,720 1,840,639 2,477,459
Amortization of deferred financing costs................................. -- 773,634 834,506
Amortization of debt discount............................................ -- 8,666,203 8,724,445
Non-cash interest expense................................................ -- 293,264 331,046
Extraordinary loss on extinguishment of debt............................. -- 3,674,112 3,778,792
Changes in assets and liabilities:.......................................
Restricted cash related to operating activities........................ -- 50,000 --
Accounts receivable.................................................... 70,131 (227,296) (259,104)
Interest receivable.................................................... -- (2,223,323) (2,223,323)
Other assets........................................................... (151,456) (394,499) (616,081)
Accounts payable and accrued expenses.................................. 274,471 783,446 4,138,348
---------- ------------ ----------------
Net cash used in operating activities...................................... (5,783,362) $(10,754,061) (21,561,593)
---------- ------------ ----------------
Cash flows from investing activities:
Purchases of property and equipment...................................... (5,917,520) (12,311,407) (25,887,197)
Purchases of marketable securities....................................... -- (145,425,182) (145,425,182)
Procurement of patents................................................... -- -- (56,763)
---------- ------------ ----------------
Net cash flows used in investing activities................................ (5,917,520) (157,736,589) (171,369,142)
---------- ------------ ----------------
Cash flows from financing activities:
Proceeds from issuance of Senior Discount Notes and related warrants..... -- 242,698,365 242,698,365
Proceeds from issuance of Series B common stock and related warrants, net
of offering costs...................................................... -- 18,800,000 18,800,000
Proceeds from issuance of Series A common stock and related warrants, net
of offering costs...................................................... -- 26,136,309 26,136,309
Proceeds from issuance of common stock................................... -- -- 418,501
Proceeds from stock option and warrant exercises......................... 23,200 99,251 123,701
Proceeds from issuance of Series B preferred stock....................... -- -- 3,193,227
Proceeds from issuance of Series C preferred stock and related common
stock warrants, net of offering costs.................................. 4,528,862 -- 4,528,862
Proceeds from issuance of common stock warrants.......................... 200,000 -- 200,000
Proceeds from collection of stockholder receivables...................... 54,167 -- 54,167
Principal payments on capital leases..................................... (80,302) (271,949) (436,751)
Proceeds from issuance of convertible bridge notes....................... 7,220,500 -- 8,182,000
Proceeds from draws under revolving credit facility and related
warrants............................................................... -- 3,796,262 15,968,854
Proceeds from short-term borrowings and related warrants................. -- -- 1,000,000
Principal payments on short-term borrowings.............................. -- (550,000) (1,050,000)
Proceeds from other long-term debt....................................... -- -- 267,735
Principal payments on other long-term debt............................... (24,651) (4,155) (275,510)
Principal payments on revolving credit facility.......................... -- (16,299,900) (16,299,900)
Payment of deferred financing costs...................................... -- (828,117) (4,957,134)
---------- ------------ ----------------
Net cash provided by financing activities.................................. 11,921,776 273,576,066 298,552,426
---------- ------------ ----------------
Net increase in cash and cash equivalents.................................. 220,894 105,085,416 105,621,691
Cash and cash equivalents at beginning of period........................... 71,522 536,275 --
---------- ------------ ----------------
Cash and cash equivalents at end of period................................. $ 292,416 $105,621,691 $105,621,691
---------- ------------ ----------------
Non-cash transactions:
Issuance of note payable for settlement of wages......................... -- -- 4,185
Issuance of common stock for settlement of wages......................... -- -- 2,520
Issuance of Series A preferred stock for settlement of notes payable and
wages.................................................................. -- -- 424,912
Property and equipment purchased under capitalized leases................ 6,650,305 45,221 7,296,120
Issuance of Series B preferred stock for settlement of note payable, for
consulting services received, and for procurement of property and
equipment.............................................................. -- -- 58,332
Issuance of common stock for stockholder receivables..................... -- -- 173,167
Issuance of note payable to repurchase Series A preferred stock.......... -- -- 29,750
Conversion of convertible bridge notes into Series C preferred stock and
related warrants....................................................... 7,776,500 -- 7,776,500
Conversion of convertible bridge notes into Series A common stock and
related warrants....................................................... -- 405,500 405,500
Issuance of common stock warrants as finders fees........................ 10,000 -- 10,000
Non-cash deferred financing costs........................................ -- -- 27,200
Issuance of note payable to vendor for up-front services fees............ -- 150,000 150,000
Issuance of note payable for consulting services received................ -- -- 50,000
Cancellation of stockholder receivable for stock repurchase.............. 22,500 -- 22,500
Net liabilities in excess of assets acquired in connection with
Separation Agreement................................................... -- -- 404,621
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

F-33
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
(FORMERLY SPECTRANET INTERNATIONAL)
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of FirstWorld
Communications, Inc. (the Company) have been prepared by Company management,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. The unaudited consolidated financial statements include the
accounts and results of operations of the Company and its subsidiaries, all of
which are wholly-owned. All significant intercompany balances and transactions
have been eliminated. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. However, in the opinion of Company management, the unaudited
consolidated financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the Company's
financial position as of June 30, 1998, and the results of its operations and
its cash flows for the nine months ended June 30, 1997 and 1998 and for the
period from September 1, 1993 (inception) to June 30, 1998. These unaudited
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto for the fiscal year ended
September 30, 1997, included elsewhere in this Prospectus.

NOTE 2--HIGH YIELD DEBT OFFERING AND ADDITIONAL EQUITY INVESTMENT

On April 13, 1998, the Company completed (i) an offering of debt securities
pursuant to Rule 144A under the Securities Act of 1933, as amended (the Act) for
gross proceeds of $250,205,000 (the High Yield Debt Offering) and (ii) a $20
million private placement to Colorado Spectra 3, LLC, a Colorado limited
liability company (Spectra 3), and Enron Capital & Trade Resources Corp., a
Delaware corporation (Enron) (the Additional Equity Investment) pursuant to the
exercise of an existing option held by Spectra 3 and Enron.

In the High Yield Debt Offering, the Company sold 470,000 units consisting
of 13% Senior Discount Notes due 2008 (the Notes) and warrants to purchase an
aggregate of 3,713,094 shares of the Company's Series B Common Stock. The Notes
will accrete in value through April 15, 2003 at a rate of 13% per annum,
compounded semi-annually, at which time $470.0 million in aggregate principal
amount at maturity will be outstanding. Cash interest will neither accrue nor be
payable prior to April 15, 2003. Thereafter, cash interest on the Notes will
accrue and will be payable semiannually in arrears on each April 15 and October
15, commencing October 15, 2003, at a rate of 13% per annum. The Company is not
required to make mandatory redemption or sinking fund payments with respect to
the Notes prior to maturity. The Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after April 15, 2003, at a
premium declining to par on April 15, 2006, plus accrued and unpaid interest
through the date of redemption. In the event of a change in control, as defined
in the indenture governing the Notes, the holders of the Notes will have the
right to require the Company to purchase their Notes in an amount equal to 101%
of the aggregate principal amount at maturity or accreted value thereof, as
applicable, plus accrued and unpaid interest to the date of purchase. The
warrants issued in connection with the High Yield Debt Offering have an exercise
price of $0.01 per share, are exercisable at any time on or after the earlier to
occur of May 1, 1999, an initial public offering of the Company's common stock
or in the event of a change in control, and expire on April 15, 2008. The fair
value of these warrants at the time of grant, which was estimated by management
to be $15,001,000, has been recorded as a discount on the underlying debt and is
being amortized to interest expense using the effective interest method over the
period that the Notes are outstanding.

F-34
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
(FORMERLY SPECTRANET INTERNATIONAL)
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--HIGH YIELD DEBT OFFERING AND ADDITIONAL EQUITY INVESTMENT (CONTINUED)
Pursuant to the Additional Equity Investment, the Company sold to each of
Spectra 3 and Enron 3,333,333 shares of Series B Common Stock and warrants to
purchase an additional 3,333,333 shares of Series B Common Stock. The aggregate
net proceeds of the High Yield Debt Offering and the Additional Equity
Investment were $260.7 million.

NOTE 3--DEBT EXTINGUISHMENT

NOTE 4--MARKETABLE SECURITIES

Marketable securities consist principally of commercial paper with original
maturities of beyond three months but less than six months. The Company has
classified its marketable securities as held to maturity as management has the
intent and ability to hold those securities to maturity. Such securities are
stated at cost. The fair value of the Company's marketable securities
approximates the carrying value.

NOTE 5--REINCORPORATION

Effective June 26, 1998, the Company changed its state of incorporation from
California to Delaware. In connection therewith, a par value equal to $.0001 per
share was assigned to each series of common and preferred stock. As a result,
the consolidated statement of stockholders' equity for the nine months ended
June 30, 1998 reflects a reclassification to additional paid-in capital for the
amounts in excess of par value.

NOTE 6--LONG DISTANCE CARRIER AGREEMENT

The Company's contract with Sprint (the long distance agreement referenced
in the final paragraph of Note 8 to the Company's Audited Consolidated Financial
Statements), whereby the Company is committed to certain minimum service fees
was amended in June of 1998. Pursuant to such amendment, minimum fees under the
contract aggregate $37,500, $487,500 and $1,437,500 during the remainder of
fiscal 1998 and for fiscal 1999 and 2000, respectively.

NOTE 7--RETENTION OF NEW CHIEF EXECUTIVE OFFICER AND PRESIDENT

On September 28, 1998, the Company entered into an Employment Agreement with
Sheldon S. Ohringer (the Employment Agreement), pursuant to which Mr. Ohringer
joined FirstWorld as its President and Chief Executive Officer on October 1,
1998 (the Commencement Date). The Employment Agreement has a three year term
ending on the close of business on September 30, 2001, unless terminated earlier
by either party. The Employment Agreement provides for an initial annual base
salary of $200,000 and an annual cash bonus not to exceed 50% of Mr. Ohringer's
base salary. In addition, to compensate

F-35
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
(FORMERLY SPECTRANET INTERNATIONAL)
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--RETENTION OF NEW CHIEF EXECUTIVE OFFICER AND PRESIDENT (CONTINUED)

Mr. Ohringer for certain benefits that he would have received from his previous
employer, FirstWorld has agreed to pay Mr. Ohringer a cash payment of $4,000,000
(the Equalization Payment) in three separate installments. The first $2,000,000
installment of the Equalization Payment was paid on October 1, 1998, the second
and third $1,000,000 installments of the Equalization Payment are due and
payable on October 1, 1999 and October 1, 2000, respectively. Mr. Ohringer must
be employed by the Company on the date an installment becomes due to be eligible
to receive the installment payment unless the Company terminates Mr. Ohringer's
employment other than for cause or Mr. Ohringer terminates his own employment
for good reason (as defined in the Employment Agreement) prior to the
installment date. In addition, Mr. Ohringer may elect to receive all or any
portion of the second and third installment payments in the form of FirstWorld
Series B Common Stock. If Mr. Ohringer elects to receive any of the second or
third installment payments in Series B Common Stock, such stock will be valued
at $5.00 and $7.50 per share, respectively.

In addition, under the Employment Agreement, Mr. Ohringer also will be
eligible for the following performance based bonuses:

(i) If the Company consummates a Qualified Initial Public Offering (as
defined in the Employment Agreement) with a price of at least $10.00 per
share (subject to adjustment as set forth in the Employment Agreement)
within the first 18 months after the Commencement Date, the Company will pay
Mr. Ohringer a $1,000,000 cash bonus;

(ii) If the Company consummates a Qualified Initial Public Offering with
a price of at least $10.00 per share (subject to adjustment as set forth in
the Employment Agreement) within the first 12 months after the Commencement
Date, the Company will be obligated to pay Mr. Ohringer a $4,207,500 cash
bonus on September 30, 2001 (unless otherwise accelerated as described in
the Employment Agreement);

(iii) If the Company consummates a Qualified Initial Public Offering with
a price of at least $12.50 per share (subject to adjustment as set forth in
the Employment Agreement) within the first 24 months after the Commencement
Date, the Company will be obligated to pay Mr. Ohringer a $8,415,000 cash
bonus on September 30, 2001 (unless otherwise accelerated as described in
the Employment Agreement); provided that if Mr. Ohringer earns the payment
described in this clause (iii) he will not be entitled to receive the
payment described in clause (ii) above; and

(iv) If the Company has a market capitalization of at least $1.2 billion
(as adjusted as described in the Employment Agreement) for a period of 20
consecutive trading days during a three-year period beginning on the
Commencement Date, the Company will be obligated to pay Mr. Ohringer a cash
payment equal to $16,830,000 minus any amounts he receives pursuant to
clause (ii) or (iii) above on September 30, 2001 (unless otherwise
accelerated as described in the Employment Agreement).

Mr. Ohringer also has been granted an option to purchase 2,805,000 shares of
Series B Common Stock at an exercise price of $6.00 per share (subject to
anti-dilution protections set forth in the Employment Agreement). The option
vests (i) with respect to 1/3 of the shares covered by the option on the
Commencement Date, (ii) with respect to 1/3 of the shares covered by the option
on the first anniversary of the Commencement Date and (iii) with respect to the
remaining 1/3 of the shares covered by the option on the second anniversary of
the Commencement Date (unless otherwise accelerated in accordance with the terms
of the Employment Agreement).

F-36
<PAGE>
ANNEX A

GLOSSARY

ANALOG--A form of transmission employing a continuous electrical signal
(rather than a pulsed or digital system) that varies in frequency and amplitude.

ATM (ASYNCHRONOUS TRANSFER MODE)--ATM is packet-based switching and
transmission technology used to transmit voice, data and video.

BANDWIDTH--At any given level of compression, the amount of information
transportable over a link per unit of time. A single T1 circuit will carry up to
1,544,000 bits (or 1.544 megabits) per second.

BIT--A bit is the basic unit of information, yes-or-no, on-or-off, 1-or-0 in
the binary (base 2) system which is the basis of digital computing. In contrast,
a voice telephone signal over a copper wire is analog, reflecting a continuous
range of vocal tone (frequency) and volume (amplitude).

BROADBAND--Data streams of at least 1.544 megabits per second. Broadband
communications systems can transmit large quantities of voice, data and video by
way of digital or analog signals. Examples of broadband communications systems
include DS-3 systems, which can transmit 672 simultaneous voice conversations,
or a broadcast television station signal that transmits high resolution audio
and video signals into the home. Broadband connectivity is an essential element
for interactive multimedia applications.

CENTREX--A central office managed group of lines; each line is individually
connected to the central office switch, but four or five digit dialing is
permitted among the line group.

CLEC (COMPETITIVE LOCAL EXCHANGE CARRIER)--A company that provides local
exchange services in competition with the incumbent local exchange carrier.

CO-LOCATION--The ability of a CLEC to connect its network to the ILEC's
central offices. Physical co-location occurs when a CLEC places its network
connection equipment inside the ILEC's central offices. Virtual co-location is
an alternative to physical co-location pursuant to which the ILEC permits a CLEC
to connect its network to the ILEC's central offices on comparable terms, even
though the CLEC's network connection equipment is not physically located inside
the ILEC's central office.

DEDICATED ACCESS SERVICES--A line which bypasses the ILEC local network to
connect end-user customers to long distance voice and data networks.

DIALING PARITY--Dialing parity is one of the changes, required by the
Telecommunications Act, intended to level the competitive playing field. Dialing
parity when implemented will enable customers to dial only 1+ or 0+ for service
no matter which local or long distance carrier they choose.

DIGITAL--A method of storing, processing and transmitting information
through the use of distinct electronic or optical pulses that represent the
binary code digits 0 and 1. Digital transmission and switching technologies
employ a sequence of these pulses to represent information as opposed to the
continuously variable analog signal. Digital transmission and switching
technologies offer a threefold improvement in speed and capacity over analog
techniques, allowing much more efficient and cost-effective transmission of
voice, video, and data.

DS-0, DS-1, DS-3--Standard telecommunications industry digital signal
formats, which are distinguishable by bit rate (the number of binary digits (0
and 1) transmitted per second). DS-0 service has a bit rate of 64 kilobits per
second, DS-1 service has a bit rate of 1.544 megabits per second and DS-3
service has a bit rate of 45 megabits per second.

DSL (DIGITAL SUBSCRIBER LINES)--DSL is a family of technologies for
high-speed data transmission over existing copper twisted pair wiring in the
telephone local loops. Asymmetric DSL ("ADSL"), provides transmission at speeds
of up to 8 Mbps and Very-high-bit-rate DSL ("VDSL") can provide transmission at
speeds of up to 52 Mbps. VDSL technology is still in development.

A-1
<PAGE>
ETHERNET--A set of media independent LAN transport protocols that offers 10
(Ethernet), 100 (Fast Ethernet) and 1,000 (Gigabit Ethernet) megabit per second
speeds for data throughput.

FCC--Federal Communications Commission.

FIBER OPTICS--Fiber optic cable largely immune to electrical interference
and environmental factors that affect copper wiring and satellite transmission.
Fiber optic technology involves sending laser light pulses across glass strands
in order to transmit digital information.

FRAME RELAY--A high speed data packet switching service used to transmit
data between computers. Frame relay supports data units of variable lengths at
access speeds ranging from 56 kps to 1.5 megabits per second.

ICP (INTEGRATED COMMUNICATIONS PROVIDER)--A telecommunications carrier that
provides packaged or integrated services from among a broad range of categories,
including local exchange service, long distance service, enhanced data service
and other communication services.

ILEC (INCUMBENT LOCAL EXCHANGE CARRIER)--A company providing local exchange
services on the date of enactment of the Telecommunications Act, including
traditional local telephone companies including RBOCs and GTE.

INTERNET--An array of interconnected networks using a common set of
protocols defining the information coding and processing requirements that can
communicate across hardware platforms and over many links now operated by a
consortium of telecommunications service providers and others.

INTRALATA--Telecommunications services originating and terminating in the
same LATA.

INTRANET--An organization's private network or local area network which
utilizes Internet data formats and communications protocols and which may use
the Internet's facilities as the backbone for network communications.

ISDN (INTEGRATED SERVICES DIGITAL NETWORK)--A standardized all-digital
network that integrates voice and data communications through existing copper
wiring.

ISP--Internet service provider.

IT (INFORMATION TECHNOLOGY)--Describes the use of computers and software
applications to manage information within an organization.

IXC (INTER-EXCHANGE CARRIER)--Usually referred to as a long-distance service
provider. There are many facilities-based IXCs, including AT&T, MCI, WorldCom,
Sprint and Frontier.

KBPS--Kilobits per second.

KILOBIT--One thousand bits of information. The information-carrying capacity
(i.e., bandwidth) of a circuit may be measured in "kilobits per second."

LANS (LOCAL AREA NETWORKS)--The interconnection of computers for the purpose
of sharing files, programs and various devices such as work stations, printers
and high-speed modems. LANs may include dedicated computers or file servers that
provide a centralized source of shared files and programs. Most office computer
networks use a LAN to share files, printers, modems and other items. Where
computers are separated by greater distances, a Metropolitan Area Network (MAN)
or other Wide Area Network (WAN) may be used.

LATAS (LOCAL ACCESS AND TRANSPORT AREAS)--The geographically defined areas
in which RBOCs were authorized by the MFJ to provide local exchange services.
These LATAs roughly reflect the population density of their respective states
(California has 11 LATAs while Wyoming has only one). There are 163 LATAs in the
United States. LATAs have one or more area codes and may cross state lines.

LEC (LOCAL EXCHANGE CARRIER)--A company that provides local exchange
services; see ILEC and CLEC.

MBPS--Megabits per second.

A-2
<PAGE>
MEGABIT--One million bits of information. The information-carrying capacity
(i.e. bandwidth) of a circuit may be measured in "megabits per second."

MEGAPOP--A single physical location capable of providing local calling
services for multiple area codes. See "POPs."

MFJ (MODIFIED FINAL JUDGMENT)--The MFJ was a settlement of an antitrust suit
reached in 1982 between AT&T and the Department of Justice which forced the
breakup of the old Bell System. This judgment, also known as the Divestiture of
AT&T, established seven separate RBOCs and enhanced the establishment of two
distinct segments of telecommunications service; local and long distance. This
laid the groundwork for intense competition in the long distance industry. The
MFJ has been superseded by the Telecommunications Act of 1996.

MICROWAVE--A portion of the radio spectrum having radio waves that are
physically very short, ranging in length between about 30 cm and 0.3 cm and
generally used to refer to frequencies above 2 GHz.

NARROWBAND--Data streams of less than 64 kilobits per second.

NUMBER PORTABILITY--The ability of an end user to change local exchange or
long distance carriers while retaining the same telephone number. If number
portability does not exist, customers will have to change phone numbers when
they change carriers.

PBX (PRIVATE BRANCH EXCHANGE)--A device located on the customer premises
that provides call routing capability.

POPS (POINTS OF PRESENCE)--Locations where a carrier has installed
transmission equipment in a service area that serves as, or relays calls to, a
network switching center of that carrier.

RBOCS (REGIONAL BELL OPERATING COMPANIES)--The holding companies owning LEC
affiliates of the old AT&T or Bell system.

RESALE--Resale by a provider of telecommunications services (such as a local
exchange carrier) of such services to other providers or carriers on a wholesale
or a retail basis.

SONET (SYNCHRONOUS OPTICAL NETWORK)--A set of standards of optical
communications transmission systems that define the optical rates and formats,
signal characteristics, performance, management and maintenance information to
be embedded within the signals and the multiplexing techniques to be employed in
optical communications transmission systems. SONET facilitates the
interpretability of dissimilar vendors' equipment. SONET benefits business
customers by minimizing the equipment necessary for various telecommunications
applications and supports networking diagnostic and maintenance features.

T1--Telecommunications industry standard data transfer rate of 1.544
megabits per second.

TCP/IP (TRANSMISSION CONTROL PROTOCOL/INTERNET PROTOCOL)--A suite of network
protocols that allow computers with different architectures and operating system
software to communicate with other computers on the Internet.

UNBUNDLED LOOP--Essentially the two-wire copper loop that runs from the
ILEC's central office to the customer's premises.

UNBUNDLED NETWORK ELEMENTS--As a result of the Telecommunications Act of
1996, the ILECs were told to make all the different elements of their networks
available to competitors to lease on wholesale basis. Pursuant to this order,
the ILECs have had to divide their networks into 14 different elements and
allocate costs to them individually. One example of the significance of this
ruling is that if a CLEC has its own fiber backbone and its own switch, and only
needs the last mile connection from the central office to the customer premises,
it can lease that connection from the ILEC without paying for other network
elements that it does not need.

WAN--Wide Area Network; see LAN.

A-3
<PAGE>
INSIDE BACK COVER
------------------------

Four separate images which are intended to depict some of the Company's
service offerings are displayed under the caption 'Finally. An advanced,
single-source solution for all your voice, data, and internet needs. And we're
right next door.' Two images are displayed side-by-side and above the other two
images to create a larger square.

The upper left hand corner of the square depicts a telephone keypad under
the phrase 'Smart Telephony'; the upper right hand corner of the square depicts
a hand touching the screen of a computer monitor under the phrase 'LAN and Data
Solutions'; the lower right hand corner of the square depicts a close-up of the
beginning of an internet address above the phrase 'Internet Solutions'; and the
lower left hand corner of the square depicts a clock, telephone handset and
numeric report appearing over a computer keyboard above the phrase 'Remote
Communications.'

[FIRSTWORLD LOGO]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR THE SOLICITATION OF AN OFFER TO BUY, ANY SECURITY OTHER THAN THOSE TO WHICH
IT RELATES NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN
OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 1
Risk Factors................................... 10
The Exchange Offer............................. 23
Use of Proceeds................................ 31
Capitalization................................. 32
Selected Consolidated Financial Data........... 33
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 35
Business....................................... 41
Management..................................... 63
Principal Stockholders......................... 74
Certain Transactions........................... 77
Description of Exchange Notes.................. 81
Book Entry; Delivery and Form.................. 110
Description of Capital Stock................... 111
Certain United States Federal Income Tax
Considerations................................ 114
Plan of Distribution........................... 115
Legal Matters.................................. 116
Experts........................................ 116
Change in Accountants.......................... 116
Available Information.......................... 116
Index to Financial Statements.................. F-1
Glossary....................................... A-1
</TABLE>

[LOGO]

OFFER TO EXCHANGE ITS
13% SENIOR DISCOUNT NOTES
DUE 2008
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF
1933, AS AMENDED, FOR ANY
AND ALL
OF ITS OUTSTANDING
13% SENIOR DISCOUNT
NOTES DUE 2008

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

PROSPECTUS

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

OCTOBER 8, 1998

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The General Corporation Law of the State of Delaware (the "DGCL") permits a
Delaware corporation to indemnify officers, directors, employees and agents for
actions taken in good faith and in a manner they reasonably believed to be in,
or not opposed to, the best interests of the corporation, and with respect to
any criminal action, which they had no reasonable cause to believe was unlawful.
The DGCL also provides that a corporation may advance the expenses of defense
(upon receipt of a written undertaking to reimburse the corporation if it is
ultimately determined that such individual is not entitled to indemnification)
and must reimburse a successful defendant for expenses, including attorneys'
fees, actually and reasonably incurred. The DGCL further provides that
indemnification may not be made for any claim, issue or matter as to which a
person has been adjudged by a court of competent jurisdiction, after exhaustion
of all appeals therefrom, to be liable to the corporation, except only to the
extent a court determines that the person is entitled to indemnify for such
expenses that such court deems proper. The DGCL also permits a corporation to
purchase and maintain liability insurance for its directors and officers.

The Company's Certificate of Incorporation and bylaws provide that the
Company shall, to the fullest extent permitted by Section 145 of the DGCL, as
the same may be amended and supplemented from time to time, indemnify all
directors and officers and all other persons whom it has authority to indemnify
under Section 145 of the DGCL. Such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission.
FirstWorld has entered into indemnification agreements with its officers and
directors containing provisions which may require FirstWorld, among other
things, to indemnify the officers and directors against certain liabilities that
may arise by reason of their status or service as directors or officers (other
than liabilities arising from willful misconduct of a culpable nature), and to
advance their expenses incurred as a result of any proceeding against them as to
which they could be indemnified. The Company maintains insurance on behalf of
its directors and officers, insuring them against liabilities that they may
incur in such capacities or arising out of such status.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- --------------------------------------------------------------------------
<C> <S>
+1.1 Purchase Agreement dated April 6, 1998 among the Registrant, Bear, Stearns
& Co. Inc., ING Baring (U.S.) Securities, Inc., J.P. Morgan Securities,
Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated.

+3.1 Form of Certificate of Incorporation, as amended.

+3.2 Form of Bylaws, as amended.

+4.1 Indenture dated as of April 13, 1998 between the Registrant and The Bank
of New York.

+4.2 Form of 13% Senior Discount Notes due 2008 and schedule of 13% Senior
Discount Notes due 2008.

+4.3 Registration Rights Agreement dated as of April 13, 1998 among the
Registrant and the Initial Purchasers.

5.1 Opinion of Latham & Watkins.

+10.1 Form of Indemnification Agreement entered into by the Registrant and each
of its executive officers and directors and schedule listing all
executive officers and directors who have executed an Indemnification
Agreement.

+10.2 1995 Stock Option Plan and related form of option agreement.
</TABLE>

II-1
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- --------------------------------------------------------------------------
+10.3 1997 Stock Option Plan and related form of option agreement.
<C> <S>

+10.4 Warrant Agreement dated as of April 13, 1998 among the Registrant and the
Initial Purchasers and related form of warrant attached thereto.

+10.5 Warrant Registration Rights Agreement dated as of April 13, 1998 among the
Registrant and the Initial Purchasers.

+10.6 Common Stock Purchase Agreement dated as of December 30, 1997 among the
Registrant, Colorado Spectra 3, LLC, Enron Capital & Trade Resources
Corp. and the holders of $405,000 in principal amount of the Company's
convertible subordinated promissory notes.

+10.7 First Amendment to Common Stock Purchase Agreement dated as of February 9,
1998 among the Registrant, Colorado Spectra 3, LLC and Enron Capital &
Trade Resources Corp.

+10.8 Amended and Restated Investor Rights Agreement dated as of April 13, 1998
among the Registrant and the Investors set forth therein.

+10.9 Securityholders Agreement dated as of December 30, 1997 among the
Registrant, Enron Capital & Trade Resources Corp., Colorado Spectra 1,
LLC, Colorado Spectra 2, LLC and Colorado Spectra 3, LLC.

+10.10 Business Opportunity Agreement dated as of December 30, 1997 among the
Registrant, Enron Capital & Trade Resources Corp., Colorado Spectra 1,
LLC, Colorado Spectra 2, LLC and Colorado Spectra 3, LLC.

+10.11 Management Consulting Services Agreement dated as of December 30, 1997, as
amended March 17, 1998, between the Registrant and Corporate Managers,
LLC.

+10.12 Management Consulting Services Agreement dated as of December 30, 1997
between the Registrant and Enron Trade & Capital Resources Corp.

+10.13 Form of Warrant to Purchase Series B Common Stock and schedule listing all
holders of such warrants entitled to purchase a number of shares of
Series B Common Stock equal to or greater than 1% of the Company's
common stock outstanding as of May 31, 1998.

+10.14 Warrant to Purchase 2,110,140 shares of Series B Common Stock issued to
Colorado Spectra 2, LLC on December 30, 1997

+10.15 Agreement for Use of Operating Property dated as of February 25, 1997
between FirstWorld Anaheim and the City of Anaheim.

+10.16 Universal Telecommunications System Participation Agreement dated as of
February 25, 1997 among the Registrant, FirstWorld Anaheim and the City
of Anaheim.

+10.17 Development Fee Agreement dated as of February 25, 1997 between the
Registrant and the City of Anaheim.

*10.18 Agreement for Lease of Telecommunications Conduit dated as of March 5,
1998 between FirstWorld Orange Coast and The Irvine Company.

*10.19 Telecommunications System License Agreement dated as of March 5, 1998
between FirstWorld Orange Coast and The Irvine Company.

+10.20 Office Lease for Genesee Executive Plaza dated as of September 4, 1996
between Talcott Realty I Limited Partnership and the Registrant.

+10.21 Standard Industrial/Commercial Single-Tenant Lease--Gross dated as of
August 26, 1996 between Scope Development and FirstWorld Anaheim.

+10.22 SpectraNet International Founders' Sale Agreement.
</TABLE>

II-2

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- --------------------------------------------------------------------------
+10.23 System Acquisition Agreement.
<C> <S>

10.24 Employment Agreement between the Registrant and Sheldon S. Ohringer.

+12.1 Computation of Ratio of Earnings to Fixed Charges.

+16.1 Letter Regarding Change in Certifying Accountant.

+21.1 Subsidiaries of the Registrant.

23.1 Consent of PricewaterhouseCoopers LLP.

23.2 Consent of Latham & Watkins (contained in Exhibit 5.1).

23.3 Consent of Blumenfeld & Cohen.

+24.1 Power of Attorney.

+25.1 Statement of Eligibility of Trustee.

+27.1 Financial Data Schedule.

+99.1 Form of Letter of Transmittal.

+99.2 Form of Notice of Guaranteed Delivery.
</TABLE>

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

* Portions of this Exhibit have been omitted pursuant to an application for an
order requesting confidential treatment filed with the Securities and
Exchange Commission.

+ Previously filed.

(b) Financial Statement Schedules:

<TABLE>
<S> <C>
Schedule II. Valuation and Qualifying Accounts.
</TABLE>

SCHEDULES OMITTED

Schedules not listed above are omitted because of the absence of the
conditions under which they are required or because the information required by
such omitted schedules is set forth in the financial statements or the notes
thereto.

ITEM 22. UNDERTAKINGS.

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1993;

(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
posteffective amendment thereof) which individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;

(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof;

II-3
<PAGE>
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering; and

(4) If the registrant is a foreign private issuer, to file a posteffective
amendment to the registration statement to include any financial statements
required by Rule 3-19 of Regulation S-X at the start of any delayed offering or
throughout a continuous offering. Financial statements and information otherwise
required by Section 10(a)(3) of the Act need not be furnished, provided that the
registrant includes in the prospectus, by means of a post-effective amendment,
financial statements required pursuant to this paragraph and other information
necessary to ensure that all other information in the prospectus is at least as
current as the date of those financial statements. Notwithstanding the
foregoing, with respect to registration statements on Form F-3, a post-effective
amendment need not be filed to include financial statements and information
required by Section 10(a)(3) of the Act or Rule 3-19 of Regulation S-X if such
financial statements and information are contained in periodic reports filed
with or furnished to the Commission by the registrant pursuant to section 13 or
section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the Form F-3.

The undersigned Registrant hereby undertakes that insofar as indemnification
for liabilities arising under the Securities Act of 1933, as amended (the
"Act"), may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions described under Item 20 above,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim of indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted against the Registrant by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

The undersigned Registrant hereby undertakes (i) to respond to requests for
information that is incorporated by reference into this Prospectus pursuant to
Items 4, 10(b), 11, or 13 of Form S-4, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.

The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.

II-4
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Diego,
State of California, on October 8, 1998.

<TABLE>
<S> <C> <C>
FIRSTWORLD COMMUNICATIONS, INC.

By: /s/ DONALD L. STURM*
------------------------------------------
Donald L. Sturm
CHAIRMAN OF THE BOARD OF DIRECTORS
</TABLE>

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
President, Chief Executive
/s/ SHELDON S. OHRINGER Officer and Director
- ------------------------------ (Principal Executive October 8, 1998
Sheldon S. Ohringer Officer)

Executive Vice President,
Chief Operating Officer,
/s/ ROBERT E. RANDALL Acting Chief Financial
- ------------------------------ Officer and Director October 8, 1998
Robert E. Randall (Principal Financial
Officer)

Vice President, Finance
/s/ DENNIS M. MULROY* and Administration
- ------------------------------ (Principal Accounting October 8, 1998
Dennis M. Mulroy Officer)

/s/ DONALD L. STURM*
- ------------------------------ Chairman of the Board of October 8, 1998
Donald L. Sturm Directors

/s/ C. KEVIN GARLAND*
- ------------------------------ Director October 8, 1998
C. Kevin Garland

/s/ RODNEY MALCOLM*
- ------------------------------ Director October 8, 1998
Rodney Malcolm

/s/ JAMES O. SPITZENBERGER*
- ------------------------------ Director October 8, 1998
James O. Spitzenberger

/s/ MELANIE STURM*
- ------------------------------ Director October 8, 1998
Melanie Sturm

/s/ JOHN C. STISKA*
- ------------------------------ Director October 8, 1998
John C. Stiska

<TABLE>
<S> <C> <C> <C>
*By: /s/ ROBERT E. RANDALL
-------------------------
Robert E. Randall
Attorney-in-fact
</TABLE>

II-5
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
(FORMERLY SPECTRANET INTERNATIONAL)
(A DEVELOPMENT STAGE ENTERPRISE)

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING END OF
OF PERIOD ADDITIONS PERIOD
----------- ---------- ----------
<S> <C> <C> <C>
Deferred Tax Asset Valuation Allowance:
Year ended September 30, 1995............................................ 176,000 402,199 578,199
Year ended September 30, 1996............................................ 578,199 1,689,863 2,268,062
Year ended September 30, 1997............................................ 2,268,062 2,426,858 4,694,920
Period from September 31, 1993 (Inception) to
September 30, 1997..................................................... -- 4,694,920 4,694,920
</TABLE>

<PAGE>

[LATHAM & WATKINS LETTERHEAD]

October 8, 1998

FirstWorld Communications, Inc.
9333 Genesee, Suite 200
San Diego, California 92121

Re: Registration Statement on Form S-4
FirstWorld Communications, Inc.
File No. 333-57829

Ladies and Gentlemen:

In connection with the registration of $470,000,000 in aggregate
principal amount at maturity of its 13% Senior Discount Notes due 2008 (the
"Exchange Notes") by FirstWorld Communications, Inc., a Delaware corporation
(the "Company"), pursuant to a registration statement on Form S-4 (the
"Registration Statement") filed with the Securities and Exchange Commission
(the "Commission") on June 26, 1998 (File No. 333-57829), as amended by
Amendment No. 1 filed August 24, 1998 and Amendment No. 2 filed October 8,
1998, you have requested our opinion with respect to the matters set forth
below. The Exchange Notes will be issued pursuant to an indenture (the
"Indenture"), dated as of April 13, 1998, between the Company and The Bank of
New York, as trustee (the "Trustee"). The Exchange Notes will be issued in
exchange for the Company's outstanding 13% Senior Discount Notes due 2008
(the "Private Notes") on the terms set forth in the prospectus contained in
the Registration Statement and the Letter of Transmittal filed as an exhibit
thereto (the "Exchange Offer").

In our capacity as your counsel, we have made such legal and factual
examinations and inquiries as we have deemed necessary or appropriate for
purposes of this opinion.

In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals and the
conformity to authentic original documents of

<PAGE>

LATHAM & WATKINS
FirstWorld Communications, Inc.
October 8, 1998
Page 2

all documents submitted to us as copies. As to facts material to the
opinions, statements and assumptions expressed herein, we have, with your
consent, relied upon oral or written statements and representations of
officers and other representatives of the Company and others.

We are opining herein as to the effect on the subject transaction only of
the federal laws of the United States, the internal laws of the State of New
York and the General Corporation Law of the State of Delaware and we express
no opinion with respect to the applicability thereto, or the effect thereon,
of the laws of any other jurisdiction or, in the case of Delaware, any other
laws, or as to any matters of municipal law or the laws of any other local
agencies within any state.

Subject to the foregoing and the other matters set forth herein, it is
our opinion that, as of the date hereof:

When the Exchange Notes to be exchanged for the Private Notes pursuant to
the Exchange Offer have been duly executed, issued and authenticated in
accordance with the terms of the Exchange Offer and the Indenture, the
Exchange Notes will be legally valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms.

The opinion rendered in the foregoing paragraph relating to the
enforceability of the Exchange Notes is subject to the following exceptions,
limitations and qualifications: (i) the effect of bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting the rights and remedies of creditors; (ii) the
effect of general principles of equity, including whether acceleration of the
Exchange Notes may affect the collectibility of that portion of the stated
principal amount thereof which might be determined to constitute unearned
interest thereon, whether enforcement is considered in a proceeding in equity
or at law, and the discretion of the court before which any proceeding
therefor may be brought.

To the extent that the obligations of the Company under the Indenture and
the Exchange Notes may be dependent upon such matters, we have assumed for
purposes of this opinion that (i) the Trustee is (a) duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization; (b) has the requisite organizational and legal power and
authority to perform its obligations under the Indenture; (c) is duly
qualified to engage in the activities contemplated by the Indenture; and (d)
has duly authorized, executed and delivered the Indenture; (ii) the Indenture
is the legally valid and binding agreement of the Trustee, enforceable
against the Trustee in accordance with its terms; (iii) that the Trustee is
in compliance, generally and with respect to acting as Trustee under the
Indenture, with all applicable laws and regulations; and (iv)

<PAGE>

LATHAM & WATKINS
FirstWorld Communications, Inc.
October 8, 1998
Page 3

the Trustee has complied with any applicable requirement to file returns and
pay taxes under the Franchise Tax law of the State of California.

We have not been requested to express and, with your knowledge and
consent, do not render any opinion with respect to the applicability to the
obligations of the Company under the Indenture and the Exchange Notes of
Sections 547 and 548 of Title 11 of the Bankruptcy Reform Act of 1978, as
amended, or applicable state law (including, without limitation, Article 10
of the New York Debtor & Creditor Law) relating to fraudulent transfers and
obligations.

We consent to your filing this opinion as an exhibit to the Registration
Statement and to the reference to our firm contained under the heading "Legal
Matters."

Very truly yours,

/s/ LATHAM & WATKINS

<PAGE>

CERTAIN MATERIAL (INDICATED BY AN ASTERISK) HAS BEEN
OMITTED FROM THIS DOCUMENT PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT. THE OMITTED
MATERIAL HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION.

AGREEMENT FOR LEASE OF TELECOMMUNICATIONS CONDUIT

BY AND BETWEEN

THE IRVINE COMPANY

AND

FIRSTWORLD ORANGE COAST

DATE: MARCH 5, 1998

<PAGE>

TABLE OF CONTENTS

1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

2. DEMISE OF LEASED PREMISES.. . . . . . . . . . . . . . . . . . . . . . 2

2.1 Demise of Leased Premises. . . . . . . . . . . . . . . . . . . 2
2.2 Audit of Leased Premises; Hazardous Materials. . . . . . . . . 2
2.3 Additional Spectrum. . . . . . . . . . . . . . . . . . . . . . 2
2.4 Additional Areas . . . . . . . . . . . . . . . . . . . . . . . 3
2.5 Marking and Reporting of Tubes.. . . . . . . . . . . . . . . . 4
2.6 Return of Leased Premises. . . . . . . . . . . . . . . . . . . 4
2.7 Assignment of Contract Rights and Warranties.. . . . . . . . . 4
2.8 Right of Entry . . . . . . . . . . . . . . . . . . . . . . . . 4
2.9 Obligation to Restore. . . . . . . . . . . . . . . . . . . . . 5
2.10 Installation of Network. . . . . . . . . . . . . . . . . . . . 5
2.11 Multiple Networks; Switch Service. . . . . . . . . . . . . . . 6

3. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

4. RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

4.1 Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.2 Basic Percentage Rent. . . . . . . . . . . . . . . . . . . . . 8
4.3 Bonus Percentage Rent. . . . . . . . . . . . . . . . . . . . . 8
4.4 Audit Rights . . . . . . . . . . . . . . . . . . . . . . . . . 9

5. ADDITIONAL PAYMENTS BY FIRSTWORLD; IMPOSITION . . . . . . . . . . . . 10

5.1 Irvine's Net Return. . . . . . . . . . . . . . . . . . . . . . 10
5.2 Impositions. . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.3 Assessments in Installments. . . . . . . . . . . . . . . . . . 10
5.4 Direct Payment by Irvine . . . . . . . . . . . . . . . . . . . 11
5.5 Right to Contest . . . . . . . . . . . . . . . . . . . . . . . 11

6. USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

6.1 Use. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.2 Failure to Operate.. . . . . . . . . . . . . . . . . . . . . . 11

7. COMPLIANCE WITH APPLICABLE LAW. . . . . . . . . . . . . . . . . . . . 12

8. MAINTENANCE AND ALTERATIONS . . . . . . . . . . . . . . . . . . . . . 12

8.1 Obligation to Maintain.. . . . . . . . . . . . . . . . . . . . 12
8.2 Firstworld's Right to Perform Alterations. . . . . . . . . . . 12
8.3 Right to Enter Into Operations and Maintenance Agreements. . . 13

9. INDEMNITY; INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . 13

9.1 Firstworld Indemnity . . . . . . . . . . . . . . . . . . . . . 13
9.2 Exemption of Irvine from Liability.. . . . . . . . . . . . . . 13
9.3 Irvine Indemnity.. . . . . . . . . . . . . . . . . . . . . . . 14
9.4 Firstworld Insurance . . . . . . . . . . . . . . . . . . . . . 14
9.5 Form of Policies . . . . . . . . . . . . . . . . . . . . . . . 15
9.6 Increase in Liability Limits . . . . . . . . . . . . . . . . . 16
9.7 Release and Waiver of Subrogation. . . . . . . . . . . . . . . 16

<PAGE>

10. DAMAGE OR DESTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . 16

11. CONDEMNATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

11.1 Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . 17
11.2 Temporary Condemnation.. . . . . . . . . . . . . . . . . . . . 17
11.3 Settlement or Compromise . . . . . . . . . . . . . . . . . . . 17
11.4 Prompt Notice. . . . . . . . . . . . . . . . . . . . . . . . . 17

12. TRANSFERS BY FIRSTWORLD . . . . . . . . . . . . . . . . . . . . . . . 18

12.1 Firstworld's Right to Assign . . . . . . . . . . . . . . . . . 18
12.2 Submittal for Consent. . . . . . . . . . . . . . . . . . . . . 18
12.3 Effect of Transfer.. . . . . . . . . . . . . . . . . . . . . . 18
12.4 Right of First Refusal . . . . . . . . . . . . . . . . . . . . 19
12.5 Permitted Transfers. . . . . . . . . . . . . . . . . . . . . . 19
12.6 Multiple Networks. . . . . . . . . . . . . . . . . . . . . . . 19

13. FINANCING BY FIRSTWORLD . . . . . . . . . . . . . . . . . . . . . . . 20

13.1 Financing Not Prohibited Transfer. . . . . . . . . . . . . . . 20
13.2 Cooperation with Lender Requirements.. . . . . . . . . . . . . 20
13.3 Notice of Financing. . . . . . . . . . . . . . . . . . . . . . 21
13.4 Notice of Default and Lender's Cure Rights . . . . . . . . . . 22
13.5 Obligations of Lender and Successors . . . . . . . . . . . . . 23
13.6 Lender Protections.. . . . . . . . . . . . . . . . . . . . . . 24
13.7 Reversionary Interest. . . . . . . . . . . . . . . . . . . . . 24
13.8 New Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
13.9 Concurrent Exercise. . . . . . . . . . . . . . . . . . . . . . 25

14. IRVINE CURE RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . 25

14.1 Purpose. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
14.2 Notice of Default. . . . . . . . . . . . . . . . . . . . . . . 25
14.3 Priority of Cure Rights. . . . . . . . . . . . . . . . . . . . 26
14.4 Irvine's Cure Rights . . . . . . . . . . . . . . . . . . . . . 26
14.5 Purchase of Financing Encumbrance; Subrogation . . . . . . . . 28
14.6 Right to Bid at Foreclosure Sale . . . . . . . . . . . . . . . 28

15. QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

16. REPRESENTATIONS, WARRANTIES AND COVENANTS . . . . . . . . . . . . . . 29

16.1 Title to Leased Premises . . . . . . . . . . . . . . . . . . . 29
16.2 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . 29

17. FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

18. DEFAULTS; REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . 30

18.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . . 30
18.2 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
18.3 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
18.4 Late Payments. . . . . . . . . . . . . . . . . . . . . . . . . 32
18.5 Right to Perform.. . . . . . . . . . . . . . . . . . . . . . . 33
18.6 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . 33
18.7 Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . 34
18.8 Damages Limitation . . . . . . . . . . . . . . . . . . . . . . 34

19. PROTECTION OF CONFIDENTIAL INFORMATION. . . . . . . . . . . . . . . . 34

19.1 Designation of Confidential Information. . . . . . . . . . . . 34

<PAGE>

20. ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

21. NO BROKER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

22. SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

23. WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

24. MEMORANDUM OF AGREEMENT; UCC FILING . . . . . . . . . . . . . . . . . 36

25. ESTOPPEL CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . 37

26. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

26.1 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
26.2 Documents in Recordable Form.. . . . . . . . . . . . . . . . . 38
26.3 Further Assurances . . . . . . . . . . . . . . . . . . . . . . 38
26.4 Performance Under Protest. . . . . . . . . . . . . . . . . . . 38
26.5 No Third Party Beneficiaries.. . . . . . . . . . . . . . . . . 39
26.6 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . 39
26.7 Delivery of Drafts . . . . . . . . . . . . . . . . . . . . . . 39
26.8 Headings.. . . . . . . . . . . . . . . . . . . . . . . . . . . 39
26.9 Cumulative Remedies. . . . . . . . . . . . . . . . . . . . . . 39
26.10 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 39
26.11 Amendments.. . . . . . . . . . . . . . . . . . . . . . . . . . 39
26.12 Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . 39
26.13 Successors and Assigns . . . . . . . . . . . . . . . . . . . . 40
26.14 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . 40
26.15 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 40
26.16 Time Periods . . . . . . . . . . . . . . . . . . . . . . . . . 40
26.17 Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
26.18 Negation of Partnership. . . . . . . . . . . . . . . . . . . . 40
26.19 Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . . . 40
26.20 Relationships. . . . . . . . . . . . . . . . . . . . . . . . . 40

TABLE OF APPENDICES

APPENDIX 1: GLOSSARY OF DEFINED TERMS
APPENDIX 2: DEPICTION OF EXISTING SPECTRUM
APPENDIX 3: DEPICTION OF ADDITIONAL SPECTRUM
APPENDIX 4: EXISTING AVAILABLE SPECTRUM CONDUIT
APPENDIX 5: ADDITION MEMORANDUM
APPENDIX 6: PHASING PLAN
APPENDIX 7: MEMORANDUM OF LEASE

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AGREEMENT FOR LEASE OF TELECOMMUNICATIONS CONDUIT

THIS AGREEMENT FOR LEASE OF TELECOMMUNICATIONS CONDUIT (this
"Agreement") is dated as of March 5, 1998 and made by and between THE IRVINE
COMPANY, a Delaware corporation, ("Irvine") and FIRSTWORLD ORANGE COAST, a
California corporation ("FirstWorld").

RECITALS

A. Irvine has constructed the Existing Available Spectrum Conduit
within the Existing Spectrum and will construct the Additional Available
Spectrum Conduit within the Additional Spectrum. Portions of the Additional
Spectrum and the Additional Available Spectrum Conduit may already be partially
developed or under development as of the date of this Agreement, but are not
being included within the Existing Spectrum or the Existing Available Spectrum
Conduit due to the Parties' desire to limit changes in the Existing Spectrum and
the Existing Available Spectrum Conduit during the negotiation of this
Agreement.

B. FirstWorld desires to build, own and operate within the Spectrum,
the Spectrum Network by installing Cable into the Available Spectrum Conduit.
For purposes of this Agreement, the Irvine Networks shall include all Cable
installed in Conduit or any portion thereof within the Spectrum or any
Additional Areas which may be incorporated into this Agreement in accordance
with the terms hereof, but shall exclude all Equipment installed by FirstWorld
to connect Cable to Buildings. The Irvine Networks will service properties
within the Spectrum, as well as such Additional Areas which are incorporated
into this Agreement in accordance with the terms hereof, including both
properties owned by Irvine and those not owned by Irvine, provided that
FirstWorld shall have the right to create additional Networks to service
portions of the Spectrum or Additional Areas in accordance with the terms and
provisions hereof.

C. Irvine desires to lease to FirstWorld and FirstWorld desires to
lease from Irvine the space within the Conduit so that FirstWorld can install
the Network and provide service to the Serviced Buildings, on the terms and
provisions set forth herein.

D. Upon installation of Available Other Conduit in Additional Areas,
all or any portion of such Additional Areas may, but need not be, incorporated
into this Agreement in accordance with the terms and provisions hereof.

NOW, THEREFORE, in consideration of the mutual agreements contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Parties hereto agree as follows:

<PAGE>

AGREEMENT

DEFINITIONS

Initially capitalized terms used herein as defined terms shall have
the meanings given to them in the Glossary of Defined Terms attached hereto as
APPENDIX 1 (such definitions to be equally applicable to both the singular and
plural forms of the terms defined) or elsewhere in this Agreement.

DEMISE OF LEASED PREMISES.

2.1 DEMISE OF LEASED PREMISES. Irvine hereby leases the Leased
Premises to FirstWorld and FirstWorld hereby takes and hires the Leased Premises
from Irvine for the purpose of installing, maintaining, operating, repairing,
replacing and augmenting the Cable necessary for the operation of the Irvine
Networks. The Leased Premises shall also include space within any additional
Conduit installed or constructed by FirstWorld within the Spectrum and any
Additional Areas, which additional Conduit shall upon construction thereof
become the property of Irvine and a portion of the Conduit. Irvine does not
currently anticipate that it will, and Irvine shall not be required to,
construct building entrance conduit systems as part of any Available Conduit.

2.2 AUDIT OF LEASED PREMISES; HAZARDOUS MATERIALS. FirstWorld hereby
acknowledges that the Existing Available Spectrum Conduit was installed by
Irvine over a period of years, and that portions of the same may have been
installed over ten (10) years ago. Prior to the date of this Agreement,
FirstWorld has undertaken a complete audit of the Existing Available Spectrum
Conduit and approved of the condition of the same. FirstWorld hereby accepts
the Leased Premises and the Existing Available Spectrum Conduit (as they exist
as of the date of this Agreement) in their as-is condition and acknowledges that
it has undertaken such reviews and investigations of the condition of the same
as it deems necessary or appropriate. From time to time after the date of this
Agreement, Irvine shall provide prompt notice to FirstWorld that Available
Conduit has been or is about to be constructed (except to the extent space
within such Available Conduit is already a part of the Leased Premises).
Notwithstanding the foregoing, FirstWorld shall have no obligation to remove or
remediate any Hazardous Materials located within the Leased Premises or
otherwise affecting any Conduit except to the extent caused, permitted or
contributed to by FirstWorld.

2.3 ADDITIONAL SPECTRUM. From time to time after the date of this
Agreement the Parties shall add to the Leased Premises, space within the
Additional Available Spectrum Conduit, as the same is constructed, by executing
an Addition Memorandum in the form of APPENDIX 5 attached hereto. The space
within a portion of any Additional Available Spectrum Conduit so added to the
Leased Premises shall be deemed to have been so added on the date which is
thirty (30) days after FirstWorld's receipt of notice that there is Additional
Available Spectrum Conduit. The Parties agree within ten (10) days after
receipt of notice to execute an

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<PAGE>

Addition Memorandum, provided, however, that no failure by the Parties to
execute an Addition Memorandum shall invalidate any addition to the Leased
Premises effected by a notice that there is Additional Available Spectrum
Conduit. The Additional Available Spectrum Conduit shall be constructed by
Irvine in the Additional Spectrum without gaps and in a good and workmanlike
manner. Any Additional Available Spectrum Conduit shall be constructed so that
the portion of the same which is closest to any then existing Available Spectrum
Conduit is not more than 1,000 feet from a portion of such then existing
Available Spectrum Conduit. If Irvine constructs Additional Available Spectrum
Conduit which is more than 1,000 feet from any then existing Available Spectrum
Conduit, then the Parties shall review the location of such Additional Available
Spectrum Conduit together and Irvine will add space within the same to the
Leased Premises if FirstWorld determines that it can and will build or lease
facilities at its expense to connect such Additional Available Spectrum Conduit
to the Spectrum Network. If FirstWorld determines that it cannot or will not so
connect such Additional Available Spectrum Conduit, then Irvine shall add space
within such Additional Available Spectrum Conduit to the Leased Premises at a
later date when it can be added within 1,000 feet from a portion of the then
existing Available Spectrum Conduit. All Additional Available Spectrum Conduit
constructed after the date hereof shall include at least *** tubes to assure
FirstWorld that it will have *** tubes available to it in the Additional
Spectrum areas in which Conduit has not yet been constructed. FirstWorld
acknowledges that there may be Additional Available Spectrum Conduit which has
been constructed or is in the process of being constructed by Irvine as of the
date of this Agreement with less than *** and that construction of such
Additional Available Spectrum Conduit with less than *** tubes shall not
constitute a violation by Irvine of its obligations under the foregoing
sentence, nor shall Irvine be obligated to add additional tubes to the same.

2.4 ADDITIONAL AREAS. From time to time after the date of this
Agreement, Irvine may elect by written notice to FirstWorld to add to the Leased
Premises, space within Available Other Conduit, which notice shall also
designate the Additional Area to be serviced by such Available Other Conduit.
If Irvine elects to add space within Available Other Conduit to the Leased
Premises, such space within the Available Other Conduit shall be added to the
Leased Premises effective upon the date which is thirty (30) days after Irvine's
notice of such election, and the Parties shall, within thirty (30) days after
Irvine's notice of such election, or upon subsequent request by either Party,
execute an Addition Memorandum in the form of APPENDIX 5 attached hereto. After
the addition of space within any Available Other Conduit in a particular
Additional Area to the Leased Premises by Irvine, space within any Available
Other Conduit thereafter constructed in such Additional Area shall automatically
be added to the Leased Premises effective thirty (30) days after FirstWorld's
receipt of notice that the same has been constructed, and the Parties shall
execute an Addition Memorandum with regard to the space within such Available
Other Conduit within ten (10) days after request by either Party.
Notwithstanding the foregoing, no failure by the Parties to execute an Addition
Memorandum shall invalidate any addition to the Leased Premises in accordance
with this Section 2.4. Available Other Conduit to be added to this Agreement
shall be constructed by Irvine without gaps and in a good and workmanlike
manner. All Available Other Conduit to be added to this Agreement which

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*** CONFIDENTIAL TREATMENT REQUESTED

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<PAGE>

is constructed after the date hereof shall include at least *** tubes to assure
FirstWorld that it will have *** tubes available to it in the Additional Areas
in which Conduit has not yet been constructed.

2.5 MARKING AND REPORTING OF TUBES. FirstWorld shall at its expense
mark all of the Conduit utilized by it to distinguish the Conduit tubes utilized
by FirstWorld from the other tubes within telecommunications conduit installed
by Irvine in the same cluster or trench as the Conduit. FirstWorld shall also
register or report to an Underground Agency, the location of the Conduit
utilized by FirstWorld, including all additions thereto constructed by
FirstWorld.

2.6 RETURN OF LEASED PREMISES. Upon the expiration or sooner
termination of this Agreement, FirstWorld shall return the Leased Premises to
Irvine in at least its original condition free and clear of all liens and
encumbrances caused or permitted by FirstWorld, subject to reasonable wear and
tear, and subject to the provisions of this Agreement, casualty, acts of God and
condemnation. Upon such surrender, FirstWorld shall leave in place all Cable
and all Conduit installed by it or on its behalf, including the Cable located in
any Building between the point at which such Cable enters the Building and the
MDF in such Building.

2.7 ASSIGNMENT OF CONTRACT RIGHTS AND WARRANTIES. Without limiting
Irvine's right to assert warranty claims in connection with defects in the
construction of any Conduit, Irvine hereby agrees to enforce or to permit
FirstWorld to enforce for the Term of this Agreement, all of Irvine's rights
under any and all contracts relating to the construction and installation of the
Conduit, including without limitation all express or implied warranties of
manufacturers, fabricators, contractors and subcontractors.

2.8 RIGHT OF ENTRY. In connection with FirstWorld's use of the
Leased Premises, Irvine hereby agrees to permit FirstWorld to enter upon such
portions of the real property owned by Irvine within the Spectrum from time to
time and not leased to third parties (unless FirstWorld obtains the consent of
such third parties to such entry), or into such easement areas as to which
easements are held by Irvine which permit Irvine to allow a third party access
over the same, as may be designated by Irvine from time to time upon request by
FirstWorld for such entry, for the purposes of installing, maintaining,
operating, repairing, replacing and augmenting the Conduit, the Cable and the
Irvine Networks. Irvine will not unreasonably withhold, condition or delay its
consent to any entry by FirstWorld upon real property owned by Irvine or into
easement areas held by Irvine, where such entry is required by FirstWorld as an
access route to allow FirstWorld to install the Irvine Networks. To the extent
that Irvine is permitting FirstWorld to utilize easement rights held by Irvine,
FirstWorld agrees to be bound by the terms and conditions of said easements,
insofar as they pertain to FirstWorld's utilization of the same, and Irvine
shall provide FirstWorld with a copy of the instrument creating such easement
upon FirstWorld's request. FirstWorld agrees that as to any real property which
Irvine permits FirstWorld to enter upon pursuant to this Section 2.8, FirstWorld
will not unreasonably interfere with the use of such real property by the owner,
lessee or occupant thereof. FirstWorld shall have the right to rely upon
Irvine's statement that it owns a parcel of real property or holds

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*** CONFIDENTIAL TREATMENT REQUESTED

4
<PAGE>

particular easement rights. The right of entry contemplated in this Section
2.8, is not intended to address the facilities which FirstWorld anticipates it
will require for installation of Equipment at various points along the Irvine
Networks, and which FirstWorld refers to as its access nodes. The Parties
anticipate that any space or facilities required by FirstWorld on Irvine
property for the same will be leased by FirstWorld from Irvine separately from
this Agreement upon terms to be agreed to between the Parties.

2.9 OBLIGATION TO RESTORE. FirstWorld shall restore any real
property which it enters upon in accordance with Section 2.8, above, to
substantially the same condition as prior to FirstWorld's entry, which
restoration shall include, without limitation, restoration of the surface of any
trenched areas, recompaction of soil used to fill any trenches, and restoration
of any removed, damaged or destroyed landscape.

2.10 INSTALLATION OF NETWORK.

2.10.1 FirstWorld shall construct the portion of the Spectrum
Network that is located within the Existing Spectrum by FirstWorld's
installation of Cable in the Existing Available Spectrum Conduit, and
installation of additional Conduit to serve areas of the Existing Spectrum which
do not have Existing Available Spectrum Conduit and installation of Cable in
such additional Conduit, and connecting all of the same to a fully operational
telecommunications service or an operational switching facility according to the
Phasing Plan attached to this Agreement as APPENDIX 6, which Phasing Plan has
been prepared by FirstWorld and approved by Irvine, and according to
construction drawings that will be prepared by FirstWorld and submitted from
time to time to the City (if so required by the City) and to Irvine for
approval. Irvine's approval of such construction drawings shall not be
unreasonably withheld, conditioned or delayed. Notwithstanding any contrary
provision of this Agreement, if for any reason whatsoever and without regard to
any provisions of this Agreement as to Force Majeure or Unavoidable Delay,
FirstWorld fails to complete the construction of the portion of the Spectrum
Network that is located within the Existing Spectrum in accordance with this
Section 2.10.1 on or before the date which is eighteen (18) months after the
date of this Agreement (the "Initial Installation Date"), then upon notice from
Irvine given at any time after such date but prior to FirstWorld's completion of
such construction, Irvine may as its sole remedy for such failure terminate this
Agreement and the License Agreement.

2.10.2 Upon the addition of any space within Additional
Available Spectrum Conduit to the Leased Premises pursuant to Section 2.3,
FirstWorld shall prepare and submit to Irvine for its approval (which approval
shall not be unreasonably withheld, conditioned or delayed) a Phasing Plan for
the portion of the Additional Spectrum to be serviced by such Additional
Available Spectrum Conduit which provides for the completion of installation of
Cable within the main trunk line of such Additional Available Spectrum Conduit
not more than one hundred twenty (120) days after the addition of the same to
the Leased Premises (or, if such space within Additional Available Spectrum
Conduit is added prior to the Initial Installation Date, not later than one
hundred twenty (120) days after the Initial Installation Date), and shall
install Cable in such Additional Available Spectrum Conduit and cause the same
to be connected to (a) the Spectrum Network, (b) a fully operational
telecommunications service or (c) an operational switching facility, in
accordance with the approved Phasing Plan for the same and construction drawings
that will be prepared by FirstWorld and submitted from time to time to the City
(if so

5
<PAGE>

required by the City) and to Irvine for approval. Irvine's approval of such
construction drawings shall not be unreasonably withheld, conditioned or
delayed. Upon the addition of space within any Available Other Conduit to the
Leased Premises pursuant to Section 2.4, FirstWorld shall prepare and submit to
Irvine for its approval (which approval shall not be unreasonably withheld,
conditioned or delayed) a Phasing Plan for the Additional Area to be serviced by
such Available Other Conduit which provides for the completion of installation
of Cable within the main trunk line of such Available Other Conduit within one
hundred eighty (180) days after the addition of the same to the Leased Premises
(or, if such space within Available Other Conduit is added prior to the Initial
Installation Date, not later than one hundred eighty (180) days after the
Initial Installation Date), and shall install Cable in such Available Other
Conduit and cause any new Network established for the added Additional Area or
portion thereof to be connected to a fully operational telecommunications
service or an operational switching facility in accordance with the approved
Phasing Plan for the same and construction drawings that will be prepared by
FirstWorld and submitted from time to time to the City (if so required by the
City) and to Irvine for approval. Irvine's approval of such construction
drawings shall not be unreasonably withheld, conditioned or delayed.
Notwithstanding the foregoing sentence, once an initial Phasing Plan for an
Additional Area to be served by Available Other Conduit has been prepared by
FirstWorld and approved by Irvine, any further additions of Available Other
Conduit within the same Additional Area, or an expansion thereof into contiguous
real property, shall provide for the completion of installation of Cable within
the main trunk line of such Available Other Conduit within one hundred twenty
(120) days after the addition of the same to the Leased Premises (or, if such
space within Available Other Conduit is added prior to the Initial Installation
Date, not later than one hundred twenty (120) days after the Initial
Installation Date).

2.10.3 Completion of a phase shall mean the completion of
installation of all Cable necessary to provide service for that phase of a
Network and connection of such phase to a fully operational telecommunications
service line or an operational switching facility, such that service could be
provided to any property abutting the Conduit within not more than sixty (60)
days after request for service by an occupant of such property. FirstWorld shall
have the right to revise any Phasing Plan from time to time in order to respond
to changes in technology and to Customer and User requirements and to achieve
operating efficiencies, or in the case of any Additional Spectrum area or any
Additional Area, to reflect a change in Irvine's anticipated development
schedule for the area. Any material changes to any Phasing Plan shall be
subject to Irvine's approval, which shall not be unreasonably withheld,
conditioned or delayed, provided, that it shall be reasonable for Irvine to
withhold its approval to any change to a Phasing Plan which would materially
reduce or delay the potential Basic and Bonus Percentage Rent which could be
earned by Irvine pursuant to this Agreement, or which would materially reduce
the prompt provision of fiber optic service to Buildings.

2.11 MULTIPLE NETWORKS; SWITCH SERVICE.

2.11.1 FirstWorld shall have the right to provide service to
the Spectrum Service Area through a single Network or through multiple Networks,
and may provide service to any Additional Area as to which space in Available
Other Conduit has been added to this Agreement from the Spectrum Network or from
an Additional Network. FirstWorld may provide service to any areas not covered
by this Agreement utilizing the Spectrum Network or any Additional Network, so
long as: (a) there is at all times adequate capacity in the Spectrum

6
<PAGE>

Network or such Additional Network to provide service to Customers in the
Spectrum and the Additional Areas as to which space in Available Other Conduit
has then been added to the Leased Premises pursuant to this Agreement; (b) the
provision of service to such areas not covered by this Agreement (as to any
single area or in the aggregate) does not materially and adversely impact the
speed or quality of service provided to the Spectrum or such portions of the
Additional Areas; and (c) there will be at all times an alternative fiber optic
route to provide service to any such areas not covered by this Agreement without
use of the Spectrum Network or any Additional Network.

2.11.2 FirstWorld contemplates providing service to the
Spectrum Network from one of its Affiliate's switching facility in Anaheim or
any other switching facility which FirstWorld or any of its Affiliates may
hereafter control. Such facility is expected to be utilized in providing
service to multiple Networks, including Networks other than the Irvine Networks.
FWC may transfer such facility into a separate Affiliate after the date hereof,
and will enter into a separate agreement or agreements between such Affiliate
and FirstWorld with regard to the provision of service to the Irvine Networks
from such switching facility. No provision of this Agreement shall be construed
as causing such switching facility to be a part of the Spectrum Network or any
Additional Network, or requiring the transfer of such switching facility to a
separate Affiliate. In the event that Irvine succeeds to rights of FirstWorld
pursuant to the terms of this Agreement, including without limitation by
exercising any of its cure rights under Article 14 or its right of first refusal
under Section 12.4, Irvine shall have the option as to whether to assume any
agreement regarding the provision of service from such switching facility or to
terminate such agreement as to the Irvine Networks, and any such agreement
regarding any such switching facility shall acknowledge and affirm the rights of
Irvine under this Agreement as to agreements regarding switching facilities.

TERM

The term of this Agreement shall commence on the date of this
Agreement (the "Commencement Date") and shall expire on December 31, 2027,
unless terminated sooner as provided herein.

RENT

4.1 RENT. Commencing on the first Payment Date of the Term, and on
each Payment Date thereafter during the Term, FirstWorld shall pay the Rent to
Irvine, without notice or demand, in lawful money of the United States of
America. Rent shall be paid by FirstWorld to Irvine in arrears on each Payment
Date with respect to the immediately preceding calendar quarter at the address
for Irvine set forth in Section 26.1, below, or at such other address as Irvine
may from time to time specify by written notice in accordance with Section 26.1,
below. Concurrently with the payment of Rent, FirstWorld shall submit to Irvine
a report showing the information on which the amount of Rent paid by FirstWorld
was determined, and the calculation of Rent, each in reasonable detail to
provide Irvine a basis for verifying FirstWorld's determination of Rent.

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<PAGE>

4.2 BASIC PERCENTAGE RENT. The Basic Percentage Rent shall equal
*** percent (***%) of the Adjusted Gross Revenue from operation of the Irvine
Networks, whether to buildings owned by Irvine or by any other Person.

4.3 BONUS PERCENTAGE RENT.

4.3.1 The Bonus Percentage Rent payable for any calendar
quarter shall equal the sum of: (a) *** percent ( *** %) of the amount by which
Adjusted Gross Combined Revenue for the calendar quarter preceding the Payment
Date in question exceeds *** Dollars ($ *** ) but is less than or equal to ***
Dollars ($ *** ); (b) *** percent ( *** %) of the amount by which Adjusted Gross
Combined Revenue earned by FirstWorld for the calendar quarter preceding the
Payment Date in question exceeds *** Dollars ($ *** ) but is less than or equal
to *** Dollars ($ *** ); and (c) *** percent ( *** %) of the amount by which
Adjusted Gross Combined Revenue collected by FirstWorld for the calendar quarter
preceding the Payment Date in question exceeds *** Dollars ($ *** ).

4.3.2 Within sixty (60) days after the expiration of each
Fiscal Year, FirstWorld shall deliver to Irvine, FirstWorld's calculation of its
Adjusted Gross Revenue and Adjusted Gross Combined Revenue for such Fiscal Year.
If the Bonus Percentage Rent payable for such Fiscal Year exceeds the sum of all
quarterly payments made by FirstWorld pursuant to Section 4.3.1 with respect to
such Fiscal Year, then FirstWorld shall pay Irvine the amount of such excess
concurrently with FirstWorld's delivery to Irvine of FirstWorld's calculation of
its Adjusted Gross Revenue earned for such Fiscal Year. If the Bonus Percentage
Rent payable for such Fiscal Year is less than the sum of all quarterly payments
made by FirstWorld pursuant to Section 4.3.1 with respect to such Fiscal Year
then FirstWorld may credit such excess against the Bonus Percentage Rent next
payable under this Agreement, provided, however, that for the Fiscal Year ending
at or after the end of the Term, such excess, if any, shall be paid to
FirstWorld by Irvine within thirty (30) days after Irvine receives FirstWorld's
calculation of its Adjusted Gross Revenue and Adjusted Gross Combined Revenue
for such Fiscal Year. Bonus Percentage Rent payable for any Fiscal Year shall
be calculated as the sum of: (a) *** percent ( *** %) of the amount by which
Adjusted Gross Combined Revenue earned by FirstWorld for each Fiscal Year
exceeds *** Dollars ($ *** ) but is less than or equal to *** Dollars ($ *** );
(b) *** percent ( *** %) of the amount by which Adjusted Gross Combined Revenue
earned by FirstWorld for each Fiscal Year exceeds *** Dollars ($ *** ) but is
less than or equal to *** Dollars ($ *** ); and (c) *** percent ( *** %) of the
amount by which Adjusted

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*** CONFIDENTIAL TREATMENT REQUESTED

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<PAGE>

Gross Combined Revenue earned by FirstWorld for each Fiscal Year exceeds ***
Dollars ($***).

4.4 AUDIT RIGHTS. Irvine shall have the right from time to time, but
no more frequently than once every twelve (12) months, upon not less than three
(3) business days prior notice, during normal business hours, to undertake such
inspections and/or audits of FirstWorld's books and records as Irvine may deem
necessary or appropriate to audit FirstWorld's Gross Revenue, Adjusted Gross
Revenue, Adjusted Gross Combined Revenue, Basic Percentage Rent and/or Bonus
Percentage Rent, and any all revenues and expenses of FirstWorld related
thereto, including records of FirstWorld's affiliated, subsidiary or parent
entities to the extent necessary to understand any inter-company accounts shown
on the books and records of FirstWorld which would be relevant to such audit.
If it is ultimately determined in connection with any such audit that FirstWorld
has underpaid its Rent by more than *** ( *** ) percent, then FirstWorld shall
reimburse Irvine upon demand for Irvine's costs incurred in conducting such
audit. Irvine shall have the right to copy such books and records in connection
with such audit, provided, however, that Irvine hereby agrees that all
information obtained by Irvine in conducting any such audit shall constitute
Pre-Authorized Confidential Information, provided that the same may be disclosed
to the extent necessary: to enable Irvine to enforce its rights hereunder; or to
enable the review of such books and records by auditors and accountants retained
by Irvine in connection with such audit who will also treat such information as
Confidential Information. FirstWorld agrees to maintain good and accurate books
and records, and to maintain its accounting in accordance with generally
accepted accounting principles consistently applied. Any audit to be undertaken
by Irvine with regard to any Fiscal Year, or any calendar quarter within such
Fiscal Year, pursuant to this Section 4.4, shall be undertaken not later than
*** ( *** ) months following FirstWorld's delivery to Irvine of FirstWorld's
calculation of its Adjusted Gross Revenue and Adjusted Gross Combined Revenue
for such fiscal year pursuant to Section 4.3.2, above, and if Irvine does not
commence any such audit within such *** ( *** ) month period, Irvine shall
conclusively be deemed to have waived its right to an audit with respect to such
Fiscal Year, and any calendar quarter within any such Fiscal Year, and shall
thereafter be precluded from bringing any legal action or arbitration to compel
an audit for such Fiscal Year, or any calendar quarter during such Fiscal Year,
or to recover any amounts unpaid for such Fiscal Year or any calendar quarter
during such Fiscal Year. If any such audit discloses that FirstWorld has
underpaid its Rent, and FirstWorld disputes the results of such audit, then, to
the extent that the Parties cannot resolve such dispute between themselves
within a reasonable period of time, either Party may require such dispute to be
resolved by arbitration in accordance with the provisions of Article 20.

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*** CONFIDENTIAL TREATMENT REQUESTED

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ADDITIONAL PAYMENTS BY FIRSTWORLD; IMPOSITIONS

5.1 IRVINE'S NET RETURN. The Parties intend that the Rent payable by
FirstWorld shall provide Irvine with net return for the Term, free of any
expenses or charges with respect to the Leased Premises, except as specifically
provided in this Agreement. Accordingly, except as otherwise provided in this
Agreement, FirstWorld shall pay as additional rent and discharge, before failure
to pay the same shall create a material risk of forfeiture or give rise to a
penalty, each and every item of expense, of every kind and nature whatsoever,
related to or arising from the Leased Premises, or by reason of or in any manner
connected with or arising from the insuring, operation, maintenance, repair, use
or occupancy of the Leased Premises or any portion of the Leased Premises.
Notwithstanding anything to the contrary in this Agreement, FirstWorld shall not
be required: to pay any construction costs, depreciation, amortization, or
financing or refinancing costs incurred by Irvine with respect to Conduit
installed by it (except for obligations of FirstWorld under Article 9 to repair
damage caused by FirstWorld or to indemnify Irvine); to incur any expense
arising from Irvine's breach of its obligations under this Agreement or the
material inaccuracy of any representations or warranties of Irvine set forth in
this Agreement; to maintain, repair, insure or incur any other expense with
respect to conduit or tubes that are not part of the Leased Premises (except for
obligations of FirstWorld under Article 9 to repair damage caused by FirstWorld
or to indemnify Irvine).

5.2 IMPOSITIONS. For any period within the Term of this Agreement
(with daily proration for periods partially within the Term and partially
outside the Term), FirstWorld shall pay and discharge all Impositions, related
to the Cable, the Equipment and any Conduit, before the same are delinquent.
FirstWorld shall also pay all interest and penalties assessed by any
Governmental Authority on account of late payment of any Imposition, unless such
late payment was caused by Irvine's failure to remit an Imposition (paid to
Irvine by FirstWorld), in which case Irvine shall pay such interest and
penalties. To the extent that any Imposition is allocable to both the Leased
Premises and other property of Irvine, Irvine shall allocate such Imposition on
a reasonable basis as determined by Irvine, and shall notify FirstWorld of its
allocable share of such Imposition. Concurrently with such notice, Irvine shall
provide FirstWorld with a copy of the bill for the same and such reasonable
information regarding Irvine's method of allocation as to permit FirstWorld to
evaluate the same. If the bill for any Imposition which is FirstWorld's
obligation to pay hereunder is sent to Irvine by the Governmental Authority,
Irvine shall deliver such bill to FirstWorld as soon as reasonably possible
after Irvine's receipt of the same. FirstWorld hereby acknowledges that it has
been informed by Irvine that Irvine does not believe that the Conduit or any of
the easements within which the Conduit is located on real property owned by
parties other than Irvine, have ever been subjected to any separate Impositions,
and FirstWorld acknowledges that the installation of the Cable and/or the Irvine
Networks, may cause a Governmental Authority to assess Impositions upon the
Conduit and/or certain of the easements held by Irvine within which the Conduit
is located. FirstWorld acknowledges that in such event, all such Impositions
will be allocated to the Conduit and will be a part of the Impositions for which
FirstWorld will be responsible pursuant to this Section 5.2.

5.3 ASSESSMENTS IN INSTALLMENTS. To the extent permitted by
Applicable Law, FirstWorld shall have the right to apply for conversion of any
assessment or Imposition to cause it

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to be payable in installments. After such conversion, FirstWorld shall pay and
discharge only such installments of such assessment or Imposition as shall
become due and payable during the Term.

5.4 DIRECT PAYMENT BY IRVINE. If any Person entitled to receive
payment of an Imposition refuses to accept it from FirstWorld, then FirstWorld
shall give Irvine notice of such fact and shall remit payment of such Imposition
to Irvine in a timely manner, and Irvine shall thereafter be responsible for
remitting the same to such Person.

5.5 RIGHT TO CONTEST. Notwithstanding anything to the contrary in
this Agreement, FirstWorld shall have the right to contest, at its sole expense,
by appropriate legal proceedings diligently conducted in good faith, the amount
or validity of any Imposition or other tax or fee and the valuation, assessment
or reassessment (whether proposed or final) of the Leased Premises for purposes
of real estate and personal property taxes. FirstWorld may defer payment of the
contested amount pending the outcome of such contest, provided that such
deferral does not subject the Leased Premises or the Conduit or any other right
or asset of Irvine, to any risk of forfeiture or Irvine to any risk of criminal
liability. Irvine shall not be required to join in any such contest proceedings
unless such proceedings must be brought in the name of Irvine, provided however,
that Irvine shall have the right to participate in any such proceedings to the
extent it determines that such participation is necessary or appropriate to
protect its interests, and Irvine shall be entitled to be reimbursed by
FirstWorld upon demand for legal fees incurred by it in participating in any
such proceeding. If any such proceedings must be brought in Irvine's name,
Irvine shall cooperate with FirstWorld so as to permit such proceedings to be
brought in Irvine's name. FirstWorld shall pay all reasonable costs and
expenses (including reasonable attorneys' fees) incident to such proceedings.
FirstWorld shall be entitled to any refund of any contested amount (and
penalties and interest paid by FirstWorld) to the extent such refund is of
amounts previously paid by FirstWorld with regard to such contested amount,
whether such refund is made during or after the Term of this Agreement. Upon
termination of FirstWorld's contest of any amount, FirstWorld shall pay the
amount (if any) as has been finally determined in such proceedings to be due,
together with any costs, interest, penalties or other liabilities in connection
with such Imposition.

USE

6.1 USE. FirstWorld may use the Leased Premises for the development,
construction, installation, operation, maintenance, repair, replacement,
augmentation, improvement and modification of the Irvine Networks.

6.2 FAILURE TO OPERATE. In the event that FirstWorld fails to
operate the Irvine Networks or otherwise provide fiber optic telecommunications
service on the Irvine Networks for a consecutive period of five (5) days or more
then, in addition to any other rights or remedies of Irvine hereunder and
subject to the rights and remedies of any Lender under Articles 13 and 14,
Irvine may until such failure is cured by FirstWorld (but shall not be obligated
to) either remedy such failure directly or cause another fiber optic service
provider to provide service, as an agent or contractor of Irvine, utilizing the
Irvine Networks. In either such case, FirstWorld shall upon Irvine's demand
bear all expenses for, or reimburse Irvine for, all costs incurred in connection

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with, Irvine's exercise of its rights under this Section 6.2. If Irvine elects
to exercise its rights under this Section 6.2, Irvine shall also have the right
during any period in which it is exercising such remedy to utilize or to permit
another fiber optic service provider as an agent or contractor of Irvine to
utilize FirstWorld's Equipment.

COMPLIANCE WITH APPLICABLE LAW

During the Term of this Agreement, FirstWorld shall, at its own
expense, observe and comply with all Applicable Laws affecting FirstWorld's use
of the Leased Premises. FirstWorld shall procure every permit or other
authorization required in connection with FirstWorld's use of the Leased
Premises or required in connection with the installation of any Cable within the
Conduit and comply with all such permits and other authorizations.
Notwithstanding the foregoing, FirstWorld shall have the right to contest any
such Applicable Law, so long as such contest does not subject the Leased
Premises to any risk of forfeiture or Irvine to any risk of criminal liability.

MAINTENANCE AND ALTERATIONS

8.1 OBLIGATION TO MAINTAIN. During the Term, FirstWorld shall make,
or cause to be made, in a timely manner all repairs, restorations and
replacements (whether minor or not) required to maintain, at all times, the
Leased Premises and the Conduit, in good operating condition and repair.

8.2 FIRSTWORLD'S RIGHT TO PERFORM ALTERATIONS. Subject to Irvine's
prior written consent as set forth below, which consent shall not be
unreasonably withheld or conditioned, FirstWorld shall be entitled from time to
time to make, alter, modify or reconstruct, such improvements, alterations or
additions to the Conduit or portions thereof, as FirstWorld shall consider
necessary or appropriate to enable the efficient functioning of the Irvine
Networks. If FirstWorld desires to make any reconstruction, improvements, or
additions FirstWorld shall submit plans for the same showing the proposed
location and materials to be utilized to Irvine prior to the commencement of the
same for Irvine's review and approval, which approval shall not be unreasonably
withheld or conditioned. If Irvine fails to approve or disapprove of such plans
within thirty (30) days after its receipt of the same, Irvine shall be deemed to
have approved the same. In performing any work pursuant to this Section 8.2, or
in performing any repairs to or maintenance of the Conduit, FirstWorld shall
keep the Leased Premises and the Conduit free and clear of all liens for work
performed and materials provided. At least fifteen (15) days prior to
commencing any work FirstWorld will give Irvine notice that work will be
performed to enable Irvine to file notices of non-responsibility. Any
alterations, modifications, reconstruction, improvements, repairs, or additions,
including any building entrance conduit systems installed by FirstWorld under
this Agreement or the License Agreement, shall become a part of the Conduit and
the property of Irvine upon the completion thereof (and the space therein shall
then be a portion of the Leased Premises) and shall be surrendered with the
Leased Premises upon the expiration of the Term, or any earlier termination of
this Agreement.

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<PAGE>

8.3 RIGHT TO ENTER INTO OPERATIONS AND MAINTENANCE AGREEMENTS.
FirstWorld shall be entitled to enter into agreements with other Persons,
whether affiliated or non-affiliated, under which such other Persons may
undertake operational or maintenance duties associated with FirstWorld's rights
and/or obligations hereunder, including, without limitation, (a) sales, (b)
Conduit, Cable and/or Equipment installation, maintenance and repair, and (c)
other similar duties. Neither said agreements nor any performance thereunder
shall constitute a Transfer within the meaning of Section 12.1 hereof.

INDEMNITY; INSURANCE

9.1 FIRSTWORLD INDEMNITY. FirstWorld shall indemnify, defend,
protect and hold harmless Irvine its principals, officers, directors, agents,
employees and servants from and against any and all losses, costs, expenses,
claims, liabilities and damages (including reasonable attorneys' fees) arising
directly or indirectly from (a) the use and operation of the Leased Premises and
the Conduit by FirstWorld or its employees, agents or contractors, (b) the
operation of the Networks, by FirstWorld or its employees, agents, or
contractors, (c) FirstWorld's breach of its obligations or representations under
this Agreement, (d) FirstWorld's exercise of any rights of entry periodically
provided to FirstWorld as contemplated by Section 2.8, above, or (e) the
construction, operation, maintenance and repair of Conduit and Cable, in each of
the above cases except to the extent ultimately proved to be caused by the sole
active negligence or willful misconduct of Irvine, its employees, agents or
contractors, or Irvine's breach of its obligations, representations or
warranties under this Agreement. In cases of alleged negligence, or any alleged
breach of an obligation, representation or warranty by Irvine under this
Agreement, asserted by third parties against Irvine which arise out of, are
occasioned by, or are in any way attributable to any of the matters specified in
clauses (a) through (e), above, FirstWorld shall accept any tender of defense
for Irvine and shall, notwithstanding any allegation of negligence or willful
misconduct on the part of Irvine, defend Irvine and pay all costs, expenses and
attorneys' fees incurred in connection with such litigation, provided that
FirstWorld shall not be liable for any such injury or damage, and Irvine shall
reimburse FirstWorld for the reasonable attorneys' fees and costs incurred by
FirstWorld, all to the extent and in the proportion that such injury or damage
is ultimately determined by a court of competent jurisdiction (or in connection
with any negotiated settlement agreed to by Irvine) to be attributable to the
sole active negligence or willful misconduct of Irvine, or Irvine's breach of
any its obligations, representations or warranties under this Agreement. The
provisions of this Section shall survive termination of this Agreement.

9.2 EXEMPTION OF IRVINE FROM LIABILITY. FirstWorld hereby agrees
that Irvine, including Irvine's officers, trustees, partners, affiliates,
directors, agents, management contractors and representatives (collectively
referred to as "Irvine's Affiliates"), shall not be liable for, and FirstWorld
hereby irrevocably waives any claim against such parties for, injury to
FirstWorld's business or loss of income therefrom or for damage to Cable and/or
Equipment or other property of FirstWorld, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, heating, ventilation, air conditioning or lighting
fixtures, or from any other cause; provided, however, that the foregoing shall
not limit Irvine's liability for a default by Irvine of an express
representation, warranty, covenant or obligation set

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<PAGE>

forth in this Agreement or the License Agreement or from the sole active
negligence of Irvine or its employees, agents or contractors. Irvine and
Irvine's Affiliates shall not be liable for any damage arising from any act or
neglect of any other tenant of any Building.

9.3 IRVINE INDEMNITY. Irvine shall indemnify, protect and hold
harmless FirstWorld, its principals, officers, directors, agents, employees and
servants from and against any and all losses, costs, expenses, claims,
liabilities and damages (including reasonable attorneys' fees) arising directly
or indirectly from the sole active negligence or willful misconduct of Irvine,
its employees, agents or contractors, or Irvine's breach of its obligations,
representations or warranties under this Agreement. The provisions of this
Section shall survive termination of this Agreement.

9.4 FIRSTWORLD INSURANCE. FirstWorld shall procure and maintain in
force, or cause to be procured and maintained in force, throughout the Term of
this Agreement, the following insurance coverage:

9.4.1 A Commercial General Liability policy with a combined
single limit of at least *** Dollars ($ *** ) per occurrence and *** Dollars ($
*** ) in the aggregate. Such Comprehensive General Liability policy shall
include a Broad Form Endorsement including: Broad Form Property Damage;
Contractual Liability; Products and Completed Operations; and Explosion,
Collapse and Underground.

9.4.2 A Business Auto Policy providing a liability limit of
at least ***Dollars ($ *** ) for each accident and covering owned and non-owned
and hired automobiles.

9.4.3 A Workers' Compensation and Employer's Liability policy
providing California statutory Workers' Compensation benefits, including
Employer's Liability with at least the following limits:

Bodily Injury by Accident: $ *** each accident

Bodily Injury by Disease: $ *** policy limit

Bodily Injury by Disease: $ *** each employee

In addition, each Workers' Compensation and Employer's Liability policy shall
contain an insurer's waiver of subrogation in favor of Irvine.

9.4.4 A Builder's Risk policy or a Course of Construction
policy providing a liability limit of at least *** Dollars ($ *** ) covering the
Conduit during the

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*** CONFIDENTIAL TREATMENT REQUESTED

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<PAGE>

course of construction (including, without limitation, installation of Cable
into the Conduit) against loss or damage caused by All Risk Builders Risk
perils.

9.4.5 Fire and All Risk insurance in an amount not less than
*** Dollars ($ *** ) per occurrence.

9.4.6 A Transmission and Distribution All Risk policy in an
amount not less than *** Dollars ($ *** ) with Replacement Cost Blanket
Endorsement and, for the Irvine Networks, an Agreed Amount Endorsement.

9.4.7 An All Risk Property Damage policy covering
FirstWorld's or its Affiliate's switching facility in Anaheim, as well as an
additional switching facilities in an amount not less than the full replacement
cost of the switching facilities and with an earthquake sublimit of not less
than *** ( *** ) percent of the replacement cost coverage amount.

9.4.8 Any combination of Primary, Umbrella and Excess
Liability policies which together provide total limits of at least *** Dollars
($ *** ) per occurrence and *** Dollars ($ *** ) in the aggregate.

9.4.9 As to any alterations, modifications, reconstruction,
improvements, or additions to the Conduit which involve a cost in excess of $
*** (which amount shall be increased from time to time by the same percentage
increase as the percentage increase in the CPI from and after the date of this
Agreement) and which involve construction of a building entrance link on real
property owned by Irvine, completion and performance bonds and guaranties
assuring the lien free completion of all improvements being installed or
constructed when improvements are under construction, if required by Irvine,
provided, however, that if at any time during the Term FirstWorld allows a lien
to be recorded on account of work performed by or on behalf of FirstWorld which
is not released within thirty (30) days after recordation of the same, then
Irvine may thereafter require bonds and guaranties for all work to be performed
by FirstWorld in connection with this Agreement.

9.5 FORM OF POLICIES. The insurance policies required to be
procured pursuant to paragraph 9.2 shall be written only with California
admitted insurance companies having a policyholder rating of A and a
financial rating of VII or better in the Best's Key Rating Guide and shall
contain the following provisions:

9.5.1 Each policy shall contain a provision that the
coverages afforded thereby will not be canceled, reduced or materially changed
without at least thirty (30) days' prior written notice to Irvine.

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*** CONFIDENTIAL TREATMENT REQUESTED

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<PAGE>

9.5.2 The Commercial General Liability and Umbrella/Excess
Liability policies shall name Irvine as an additional insured with the following
clauses added:

(i) The insurance afforded to the additional insureds
is primary insurance. If any of the additional insureds has other insurance
which is applicable to the loss, such other insurance shall be excess and
non-contributory with this insurance as respects claims or liability arising out
of or resulting from the acts or omissions of the named insured, or of others on
behalf of the named insured.

(ii) This insurance shall apply separately to each
insured except with respect to the limits of liability.

9.6 INCREASE IN LIABILITY LIMITS. Irvine may from time to time
require that the limits of liability for any insurance policy to be maintained
under this Article 9 be increased, provided that no such increase shall cause
the limits of liability to exceed the greater of: (a) the limits of liability
required by FirstWorld's Lenders; or (b) the limits of liability set forth in
this Article 9 increased by the same percentage increase as the percentage
increase in the CPI from and after the date of this Agreement.

9.7 RELEASE AND WAIVER OF SUBROGATION. Notwithstanding anything to
the contrary in this Agreement, the Parties release each other, and their
respective agents, employees and contractors, from any liability for damage to
the property of the waiving Party that arises out of or incident to any peril
covered by property insurance carried by the Parties or out of a peril of the
type to be covered by the property insurance required to be carried under the
terms of this Agreement, whether due to the negligence of Irvine or FirstWorld
or their respective agents, employees or contractors or any other cause. Each
Party shall cause each property insurance policy obtained by it to authorize the
foregoing waiver.

10.

DAMAGE OR DESTRUCTION

FirstWorld shall promptly give Irvine notice of any damage or loss to
the Irvine Networks. Except as may result from a decrease in Adjusted Gross
Revenue, there shall be no abatement or reduction of rent on account of such
damage or loss. Except to the extent of damage or loss caused by the sole
active negligence or willful misconduct of Irvine, its employees, agents or
contractors, FirstWorld shall, as soon as reasonably practicable, restore the
damage to the Irvine Networks as well as any damage to the Conduit as nearly as
may be practicable to its condition, quality, and class immediately prior to
such damage or loss, with such changes or alterations to the Irvine Networks as
FirstWorld may request that are approved by Irvine, which approval shall not be
unreasonably withheld, conditioned or delayed. If the damage or loss occurs
within the last three (3) years of the Term of this Agreement and the cost
reasonably estimated to repair the same exceeds ten (10) percent of the average
of the two prior years Adjusted Gross Revenue, and such damage or loss was not
caused by FirstWorld's sole active negligence, then FirstWorld may terminate
this Agreement by notice given in writing to Irvine on or before sixty (60) days
following the event causing the damage accompanied by the consent to such
termination of any Lender, which notice shall specify a termination date not
less than sixty (60) days nor more than one hundred eighty (180) days following
the event causing the damage. Notwithstanding the

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foregoing, pending any such termination, FirstWorld shall use its reasonable
efforts to perform repairs to the Irvine Networks so that FirstWorld can provide
basic broadband fiber optic telecommunications service to FirstWorld's Customers
in the Spectrum and any Additional Areas then added to this Agreement.

11.

CONDEMNATION

CONDEMNATION. If a Condemnation of any portion of the Leased Premises
shall occur, then any award or awards shall be applied first to repair,
restoration or reconstruction of any remaining part of the Conduit not so taken.
FirstWorld, subject to Irvine's approval, which approval shall not be
unreasonably withheld, conditioned or delayed, shall perform such repair,
restoration or reconstruction in accordance with applicable requirements of this
Agreement. The balance of any condemnation award or awards remaining after the
repair, restoration or reconstruction shall belong to Irvine. Notwithstanding
the foregoing, FirstWorld shall be entitled to pursue and upon any recovery may
retain a separate award for the relocation costs, the interruption of
FirstWorld's business, and lost goodwill and profits (provided that Irvine shall
be entitled to a percentage of any award for lost profits equal to the amount of
Rent which would have been due on the basis of the same amount of Adjusted Gross
Revenues on which such profits are based unless Irvine has separately received
such an award on account of its interest as lessor under this Agreement). If all
of the Leased Premises is taken, or if a portion of the Leased Premises is taken
rendering the balance of the Leased Premises unsuitable, in FirstWorld's
reasonable opinion, for the continued operation of the Irvine Networks,
FirstWorld may terminate this Agreement (without affecting its rights to the
foregoing award) by notice given to Irvine of its election to do so within sixty
(60) days following the date of the Condemnation accompanied by the consent to
such termination of any Lender.

11.2 TEMPORARY CONDEMNATION. If a temporary Condemnation shall
occur with respect to use or occupancy of the Leased Premises, then all proceeds
of such temporary Condemnation (to the extent attributable to periods within the
Term of this Agreement) shall be paid to the Parties as their interests may
appear, and FirstWorld's obligations under this Agreement shall not be affected
in any way.

11.3 SETTLEMENT OR COMPROMISE. Irvine shall not settle or
compromise any Condemnation award with respect to the Leased Premises without
consent by FirstWorld, and by any Lender to whom FirstWorld has delegated such
consent rights under a Financing Encumbrance. Both FirstWorld and Irvine shall
be entitled to appear in such proceedings and claim such share of the award as
each is entitled to receive pursuant to this Agreement and Applicable Law.
Subject to the terms of its Financing Encumbrance, any Lender shall also be
entitled to appear in such proceedings and empowered to participate in any
settlement, arbitration or other proceeding involving any such Condemnation.

11.4 PROMPT NOTICE. If either Party becomes aware of any
Condemnation or threatened or contemplated Condemnation with respect to the
Leased Premises, then such Party shall promptly give notice thereof to the other
Party.

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<PAGE>

12.

TRANSFERS BY FIRSTWORLD

12.1 FIRSTWORLD'S RIGHT TO ASSIGN. FirstWorld shall not either
voluntarily or by operation of law, assign, encumber (except in accordance with
Article 13, below) or otherwise transfer its rights under this Agreement, or
sublet or otherwise permit the use of the Leased Premises by anyone other than
FirstWorld (any of the foregoing being a "Transfer") without the prior written
consent of Irvine, which consent shall not be unreasonably withheld or
conditioned. For purposes of this Agreement, any sale of a controlling
percentage of the shares of FirstWorld (except by or to a Lender which is not an
Affiliated Lender in connection with the enforcement by such Lender of its
remedies), shall be deemed to constitute a Transfer of this Agreement. Any
purported Transfer without Irvine's consent shall be void and of no force or
effect. Except to the extent permitted under Section 12.6 and Article 13,
below, in no event shall FirstWorld have the right to Transfer the Leased
Premises separately from the Irvine Networks and the License Agreement, and any
attempted Transfer of the Leased Premises separate from the Irvine Networks or
the License Agreement shall be void and of no force or effect.

12.2 SUBMITTAL FOR CONSENT. If FirstWorld desires to Transfer
this Agreement, then, unless Irvine's consent is not required hereunder for such
Transfer, FirstWorld shall notify Irvine at least thirty (30) days in advance of
the proposed Transfer and shall submit to Irvine concurrently with such notice:
(a) the name and address of the proposed transferee, (b) financial statements
for the proposed transferee, (c) a description of the proposed transferee's
business experience in the telecommunications industry, (d) a copy of the
proposed instrument effecting the Transfer and (e) such other information as
Irvine may reasonably request in connection with its review of the proposed
Transfer. Within thirty (30) days after Irvine's receipt of such information,
Irvine may consent to the proposed Transfer or disapprove of the proposed
Transfer. If Irvine disapproves of the proposed Transfer, Irvine's notice of
disapproval shall specify its reasons for disapproving of the same. Any failure
by Irvine to consent to or disapprove such Transfer within such thirty (30) day
period shall be deemed to constitute Irvine's consent to such Transfer.
FirstWorld acknowledges that this Agreement is being entered into by Irvine to
provide telecommunications service to the Spectrum, and any Additional Areas,
and that it shall be reasonable for Irvine to withhold its consent to a proposed
Transfer if Irvine reasonably determines that the proposed transferee will be
unable to provide such service at such level and quality as is then reasonably
expected by occupants of Spectrum and any Additional Areas.

12.3 EFFECT OF TRANSFER. No Transfer, even with the consent of
Irvine, shall relieve FirstWorld of its obligations under this Agreement.
Except as provided in Article 13, each transferee of FirstWorld, shall be deemed
to assume all obligations of FirstWorld under this Agreement and shall be liable
jointly and severally with FirstWorld for the payment of all rent, and for the
due performance of all of FirstWorld's obligations, under this Agreement, except
that in the case of a sublease such assumption shall be limited to the
obligations relating to the subleased portion of the Leased Premises. Except as
provided in Article 13, no Transfer shall be binding on Irvine unless a document
memorializing the Transfer is delivered to Irvine and both the
assignee/subtenant and FirstWorld deliver to Irvine an executed consent to
transfer instrument in a form reasonably required by Irvine and consistent with
the requirements of this Article. The acceptance by Irvine of any payment due
under this Agreement from any other Person shall not be

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<PAGE>

deemed to be a waiver by Irvine of any provision of this Agreement or to be a
consent to any Transfer. Consent by Irvine to one or more Transfers shall not
operate as a waiver or estoppel to the future enforcement by Irvine of its
rights under this Agreement.

12.4 RIGHT OF FIRST REFUSAL. In the event that FirstWorld
desires to sell the Irvine Networks, or a direct controlling interest in
FirstWorld, Irvine shall have a continuing right of first refusal as to any such
transactions. FirstWorld agrees to provide Irvine with written notice of the
terms and provisions of any such proposed transaction. Irvine shall have
fifteen (15) days after its receipt of notice of such terms and provisions to
exercise its right of first refusal. If Irvine does not exercise the same
within such fifteen (15) day period, Irvine shall be deemed to have waived such
right as to the transaction for which notice was given, and FirstWorld shall
thereafter have the right for a period of one hundred eighty (180) days
thereafter to complete the proposed transaction at a price not less than
ninety-five (95) percent of that set forth in the notice given to Irvine and
with no material changes to other terms of the transaction which would
reasonably be considered to be monetary or financial terms of the transaction.
This right of first refusal shall not be construed to apply to any Financing, to
the pledge of FirstWorld's shares as security for a Financing, or to any
transfer by or to a Lender. Any information provided in connection with a
transaction to which this right of first refusal would apply shall be
Pre-Authorized Confidential Information, including, without limitation, any
notice of the terms and provisions of any proposed transaction. In the event
that FirstWorld intends to undertake a public offering of its shares, FirstWorld
shall have the right to notify Irvine prior to commencing efforts towards such
public offering and the parties shall for a period of thirty (30) days following
such notice attempt in good faith to negotiate a private transaction involving
the sale to Irvine of the shares of FirstWorld to be offered to the public. If
FirstWorld and Irvine are unable to negotiate such a transaction within such
thirty (30) day period, the Parties shall negotiate in good faith to establish a
procedure to apply the right of first refusal of Irvine set forth in this
Section 12.4 to the structure of the proposed public offering and shall use
their best efforts to conclude such negotiations within fifteen (15) days after
the end of such thirty (30) day period.

12.5 PERMITTED TRANSFERS. Notwithstanding any contrary provision
of Article 12, FirstWorld shall have the right, without obtaining the prior
consent of Irvine: (a) to assign this Agreement to an Affiliate, so long as such
assignment occurs concurrently with the assignment to such Affiliate of the
License Agreement and all of the Irvine Networks; (b) to assign this Agreement
in connection with a reorganization or merger, so long as concurrently with such
assignment the License Agreement and all of the Irvine Networks are assigned to
the same entity as this Agreement, and (c) to encumber its rights under this
Agreement in accordance with Article 13, below.

12.6 MULTIPLE NETWORKS. FirstWorld shall have the right to
provide service to the Spectrum Service Area through a single Network or through
multiple Networks, and may provide service to any Additional Area added to this
Agreement from the Spectrum Network or from an Additional Network. If
FirstWorld elects to provide service to any portion of the Spectrum Service Area
or any such Additional Area through more than one Network, FirstWorld may need
to assign or partially assign this Agreement to a separate Affiliate formed by
FirstWorld or by FWC for such purpose. In such event, the Parties shall work
together in good faith to determine a mutually satisfactory method for partially
assigning FirstWorld's rights under this Agreement to such Affiliate while
protecting both Parties rights and obligations hereunder. In

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connection with such provision of service by any Additional Network, FirstWorld
may sublet a portion of the Leased Premises to an Affiliate formed by FirstWorld
or FWC for such purpose, provided, however, that Irvine shall be provided a copy
of any proposed sublease prior to the execution thereof and shall have the right
to require both FirstWorld and the proposed sublessee/Affiliate to enter into
such further agreements with regard to such sublease as Irvine may determine are
reasonably necessary to protect its rights under this Agreement. FirstWorld
shall reimburse Irvine for Irvine's costs, including attorneys' fees, incurred
in connection with any assignment or sublease pursuant to this Section 12.6.

13.

FINANCING BY FIRSTWORLD

13.1 FINANCING NOT PROHIBITED TRANSFER. Subject to and in
accordance with the terms and provisions of this Article 13, and notwithstanding
anything in this Agreement to the contrary, FirstWorld shall have the right,
without Irvine's consent, to encumber the Cable, this Agreement and FirstWorld's
interest in the Leased Premises (or a portion of foregoing) as security for any
Financing and to record any Financing Encumbrance given by FirstWorld as
security for any Financing. None of the following shall be deemed to constitute
a Transfer of FirstWorld's rights under this Agreement or to otherwise violate
any provision of this Agreement prohibiting the assignment, encumbrance, or
other transfer of this Agreement or FirstWorld's rights hereunder: (a)
FirstWorld's making of a Financing Encumbrance as security for any Financing;
(b) any sale of this Agreement and of FirstWorld's interest in the Leased
Premises and/or the Cable in any proceedings for the foreclosure of any
Financing Encumbrance; (c) any assignment, transfer or conveyance to Lender in
lieu of such foreclosure (or to a Lender's designated purchaser or assignee
which is a Permitted Assignee); or (d) any sale of this Agreement and of
FirstWorld's interest in the Leased Premises by Lender following Lender's
acquisition of the same in any proceedings for the foreclosure of any Financing
Encumbrance, so long as such sale is to a Person (a "Permitted Assignee"): (i)
which is not insolvent or the subject of any bankruptcy proceeding for
reorganization or liquidation or (ii) with which Irvine does not have material
litigation pending. Irvine shall recognize any purchaser of FirstWorld's
interests under this Agreement pursuant to a foreclosure sale under a Financing
Encumbrance, any transferee of FirstWorld's interests under this Agreement under
an assignment in lieu of foreclosure, or, if the Lender should be such purchaser
or assignee, a direct transferee of Lender that is a Permitted Assignee.

13.2 COOPERATION WITH LENDER REQUIREMENTS.

13.2.1 Irvine acknowledges that any Lender may require, among
other things, certain protections and agreements from FirstWorld and Irvine,
anticipated to include, without limitation, the following:

(a) Security interests in all Cable, equipment,
furniture, fixtures and other tangible and intangible property owned by
FirstWorld and incorporated into or used in connection with the Irvine Networks;
collateral assignments of all major construction and consulting contracts;
collateral assignments of FirstWorld's contracts with Customers and Users

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and the rights to receive revenue thereunder; and collateral assignments of
FirstWorld's bank accounts, accounts receivable and other similar collateral
relating to the Irvine Networks.

(b) The creation of sinking funds and reserves, the
maintenance of specified financial ratios, and other similar covenants with
respect to the development and operation of the Irvine Networks that would
commonly be required in connection with non-recourse financing.

(c) That Irvine agree (i) to recognize such Lenders
and their successors, following a foreclosure on a Financing Encumbrance or a
transfer by deed in lieu of foreclosure, as parties having the rights and
obligations of FirstWorld under this Agreement, in the event such Lenders and
their successors elect to assume FirstWorld's rights and obligations hereunder,
and (ii) in the event of such an assumption, that such Lenders and their
successors, following a foreclosure on a Financing Encumbrance or a transfer by
deed in lieu of foreclosure, will not be obligated to cure any of FirstWorld's
non-monetary defaults arising prior to the foreclosure which are not reasonably
capable of being cured.

13.2.2 Irvine agrees to cooperate in good faith with
FirstWorld's efforts to obtain Financing. In particular, if required by a
Lender, Irvine agrees to enter into one or more commercially reasonable
agreements with one or more Lenders containing or permitting the provisions
contemplated pursuant to Section 13.2.1, and which may reflect that the Lenders
may succeed to the rights of FirstWorld hereunder and may thereby continue to
utilize the Cable and Conduit until termination of this Agreement in accordance
with the terms hereof. FirstWorld shall reimburse Irvine for Irvine's costs,
including attorney's fees, incurred in connection with the review and
negotiation of any such agreements with Lenders if Irvine is requested to review
more than one such agreement in any calendar year. Irvine shall not, however, be
required to consent to any provision that would obligate Irvine to repay or be
liable for any cost related to any Financing. Irvine's obligations under any
such agreement with any Lender shall be considered material obligations of this
Agreement enforceable by FirstWorld against Irvine as if fully set forth herein.
Irvine agrees that all information regarding the Lenders and their relationship
with FirstWorld shall constitute Pre-Authorized Confidential Information.
Irvine's failure to enter into any such agreement shall not limit or in any way
adversely affect the rights of any Lender pursuant to this Article 13.

13.2.3 Any Lender, by acceptance of any Financing Encumbrance,
agrees that it accepts the same subject to the rights of Irvine pursuant to
Article 14, below. Any agreements entered into with any Lenders pursuant to
Section 13.2.2., above, if any, shall contain provisions for the benefit of
Irvine acknowledging and confirming the rights of Irvine pursuant to the
provisions of Article 14, below, and that such Lender's rights in and to the
Conduit, including any Conduit installed by or on behalf of FirstWorld, and in
and to any Cable installed by or on behalf of FirstWorld pursuant to this
Agreement, shall be subordinate to Irvine's ownership of the Conduit and
Irvine's rights to the Cable as set forth in this Agreement upon the expiration
or any earlier termination of this Agreement.

13.3 NOTICE OF FINANCING. If FirstWorld enters into any Financing
Encumbrance(s), then the Lender(s) thereunder shall be entitled to the Lender
protections provided for under this Agreement only from and after such time as
FirstWorld or such Lender has given Irvine written notice of the name and
address of such Lender, accompanied by a copy of

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the executed Financing Encumbrance. Irvine shall, upon request, acknowledge
receipt of the name and address of any Lender (or proposed Lender). Any Lender
shall provide Irvine written notice of any change in its address.

13.4 NOTICE OF DEFAULT AND LENDER'S CURE RIGHTS. If Irvine
shall give any notice of default or breach under this Agreement, then Irvine
shall (provided that Irvine has received notice of a Financing Encumbrance
pursuant to Section 13.3) at the same time and by the same means give a copy of
such notice to the Lender, which notice shall describe in reasonable detail the
alleged default. Upon receiving any notice of a default, any Lender shall have
the same cure period granted to FirstWorld under this Agreement, plus (so long
as such Lender is not an Affiliated Lender) the additional time provided for
below, within which to take (if such Lender so elects) whichever of the actions
set forth below shall apply with respect to the default described in such notice
of default (such actions, "Lender's Cure," and a Lender's rights to take such
actions, "Lender's Cure Rights"):

13.4.1 In the case of a monetary default, the Lender
shall be entitled (but not required) to cure such default within a cure period
following notice of such default consisting of the cure period allowed to
FirstWorld under this Agreement plus (so long as such Lender is not an
Affiliated Lender) an additional period of twenty (20) days.

13.4.2 In the case of any non-monetary default that a
Lender is reasonably capable of curing without obtaining possession of the
Leased Premises (other than a non-monetary default that is not reasonably
susceptible of being cured by a Lender, such as a bankruptcy of FirstWorld), the
Lender shall be entitled, but not required, to: (a) within a period following
notice of such default consisting of the cure period allowed to FirstWorld under
this Agreement plus (so long as such Lender is not an Affiliated Lender) an
additional period of thirty (30) days, advise Irvine of Lender's intention to
take all reasonable steps necessary to remedy such non-monetary default; and (b)
cure the same within such period or; (c) if the same is not reasonably
susceptible of being cured within such period, duly commence the cure of such
non-monetary default within such extended period and thereafter diligently
prosecute to completion the cure of such non-monetary default and complete such
cure within a reasonable time under the circumstances, subject to Unavoidable
Delay (except an Unavoidable Delay that causes Lender to be unable to obtain
possession of the Leased Premises).

13.4.3 In the case of a non-monetary default that is not
reasonably susceptible of being cured by a Lender without obtaining possession
of the Leased Premises, the Lender shall be entitled (but not required) to do
the following, so long as, with respect to any defaults other than those
referred to in this Section 13.4.3, such Lender has exercised or is exercising
the applicable Lender's Cure Rights as defined in this Agreement:

(a) At any time within sixty (60) days after
notice of default, Lender shall be entitled to (i) institute proceedings to (A)
obtain possession of the Leased Premises as mortgagee (including possession by a
receiver), or (B) acquire the Leased Premises by foreclosure proceedings or
otherwise, or (ii) unless the Lender is an Affiliated Lender, commence
negotiations for an assignment in lieu of foreclosure, and (subject to any stay
in any proceedings involving the bankruptcy, insolvency, or reorganization of
FirstWorld or the like, or any injunction, unless such stay or injunction is
lifted), prosecute the same or any combination of

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<PAGE>

the same to completion with commercially reasonable diligence subject to
Unavoidable Delay, for a period not to exceed a total of three hundred sixty
(360) days.

(b) Upon obtaining possession of the Leased
Premises (before or after expiration of any otherwise applicable cure period),
Lender shall be entitled (but not required) to commence and proceed with
reasonable diligence and reasonable continuity to cure such non-monetary
defaults as are then reasonably susceptible of being cured by such Lender,
subject to Unavoidable Delay.

13.4.4 In addition to the foregoing Lender's Cure Rights,
during any period following Irvine's notice of default, any Lender shall have an
additional period of ninety (90) days beyond the time in which FirstWorld would
be obligated to act, to take any action to install Cable or Conduit or to
provide service to any Additional Spectrum or any Additional Area as may then be
required under this Agreement. No provision of this Section 13.4.4 shall be
construed to relieve or delay FirstWorld's obligations hereunder to install
Cable or Conduit or provide service.

So long as the time period for a Lender to exercise Lender's Cure Rights with
respect to a non-monetary default by FirstWorld has not expired (and provided
that all monetary defaults are cured within Lender's cure period provided for
under this Agreement), Irvine shall not terminate this Agreement or such
Lender's right to cure a default or obtain title to the Leasehold Premises,
provided, however, that Irvine shall be permitted to proceed to seek damages on
account of such default from FirstWorld. A Lender shall not be required to
continue to exercise Lender's Cure Rights or otherwise proceed to obtain
possession if and when the default that such Lender was attempting to cure shall
have been cured. Upon such cure and the cure of any other defaults in
accordance with this Agreement, this Agreement shall continue in full force and
effect as if no default(s) had occurred. Nothing in the Lender protections
provided for in this Agreement shall be construed to either (i) extend the Term
beyond the expiration date provided for in this Agreement that would have
applied if no default had occurred or (ii) require any Lender to cure any
default by FirstWorld that is not reasonably capable of being cured by the
Lender (such as a bankruptcy of FirstWorld) in order to preserve its rights
under this Agreement.

13.5 OBLIGATIONS OF LENDER AND SUCCESSORS. No Lender, in the exercise
of its rights under this Agreement, shall solely on account of such exercise be
deemed to be an assignee or transferee or mortgagee in possession of the Leased
Premises so as to require such Lender to assume or otherwise be obligated to
perform any of FirstWorld's obligations under this Agreement except when, and
then only for matters accruing while, such Lender has entered into possession of
the Leased Premises in the exercise of its remedies under its Financing
Encumbrance (as distinct from its rights under this Agreement to cure any Events
of Default or exercise Lender's Cure Rights). Except for pre-existing uncured
monetary defaults of FirstWorld, which any Lender (or purchaser at foreclosure
sale) shall be obligated to cure upon becoming the owner of FirstWorld's rights
hereunder, no Lender (or purchaser at a foreclosure sale held pursuant to a
Financing Encumbrance) shall be liable under this Agreement unless and until
such time as it becomes, and in the case of the Lender only for matters accruing
while it remains, the owner of the interest of FirstWorld in and to the Leased
Premises under this Agreement after foreclosure or an assignment in lieu
thereof. During such time, and for matters accruing while any Lender is in
possession of the Leased Premises, Lender shall be fully liable and responsible
for all

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<PAGE>

obligations under the terms and provisions of this Agreement. Except as to
pre-existing uncured monetary defaults of FirstWorld, which any purchaser shall
be obligated to cure, any purchaser from a Lender after the Lender's foreclosure
or acceptance of an assignment in lieu of foreclosure shall only be liable under
this Agreement from and after the time it becomes the owner of the interests of
FirstWorld in and to the Leased Premises under this Agreement.

13.6 LENDER PROTECTIONS.

13.6.1 No voluntary cancellation, termination, surrender,
acceptance of surrender, or abandonment, of this Agreement, nor any amendment or
modification adversely affecting a Lender's rights under this Article 13, shall
bind a Lender (other than an Affiliated Lender) if done without notice to and
the written consent of such Lender.

13.6.2 Any Lender shall have the right, but not the
obligation, to take possession of the Leased Premises and to perform any
obligation of FirstWorld under this Agreement and to remedy any default by
FirstWorld. Irvine shall accept performance by or at the instigation of a
Lender in fulfillment of FirstWorld's obligations, for the account of FirstWorld
and with the same force and effect as if performed by FirstWorld.

13.6.3 A Lender shall in no event be required to cure or
commence to cure any default (if such default is provided for in this Agreement)
consisting of FirstWorld's failure to satisfy or discharge any lien, charge, or
encumbrance affecting the Leased Premises junior in priority to the lien of the
Financing Encumbrance held by such Lender.

13.6.4 Any payment made by a Lender to Irvine to cure any
claimed default shall be deemed to have been made without prejudice to
FirstWorld's or the Lender's recovery of such payment if Irvine's claim of a
default shall be determined by a court of competent jurisdiction to have been
erroneous.

13.6.5 Any Lender may exercise its rights under this
Agreement, or perform any action permitted to be taken by a Lender under this
Agreement, through an agent.

13.6.6 If more than one Lender desires to exercise
Lender's Cure Rights or if more than one Lender desires to exercise any other
right or privilege provided for Lenders under this Agreement, then the Party
against whom such rights or privileges are to be exercised shall be required to
recognize either: (a) only the Lender that desires to exercise such right or
privilege and whose Financing Encumbrance is most senior in lien (as against
other Financing Encumbrances of Lenders desiring to exercise such rights) or (b)
such other Lender, as has been designated in writing by all Lenders, to exercise
such right or privilege. In such case, Irvine shall be provided notice of the
priority of Financing Encumbrances, which notice shall consist of either (a) the
report or certificate of a title insurance company licensed to do business in
California or (b) joint written instructions of all Lenders.

13.7 REVERSIONARY INTEREST. No Financing Encumbrance shall
encumber or in any other way affect Irvine's reversionary interest in the
Leased Premises, or in any Cable or any portion of the Conduit, or limit or
restrict Irvine's rights and remedies under this Agreement except as
expressly provided in this Agreement.

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<PAGE>

13.8 NEW LEASE. In the event that this Agreement or any portion
hereof is irrevocably rejected by a trustee or debtor-in-possession in any
bankruptcy or insolvency proceeding, Irvine agrees that it will, upon the
request of the Lender whose Financing Encumbrance is most senior (as evidenced
by the notice required under Section 13.6.6, above) execute and deliver to such
senior Lender, a new agreement containing the same covenants, agreements, terms,
provisions and limitations set forth in this Agreement and for a term equal to
the then remaining Term hereof, so long as such Lender prior to or concurrently
with Irvine's execution and delivery of such new agreement: (a) executes and
delivers to Irvine a counterpart or counterparts of such new agreement and
agrees to be bound under the covenants, agreements, terms, provisions and
limitations thereof; (b) provides Irvine with such assurances as Irvine may
reasonably require confirming that this Agreement has been irrevocably rejected
and that no trustee in bankruptcy, debtor-in-possession, other Lender, or
FirstWorld or any of its Affiliates will assert the continuing effectiveness and
enforceability of this Agreement; (c) cures any then existing monetary defaults
under this Agreement through the effective date of such new agreement; (d)
agrees to indemnify Irvine or provide Irvine with such other assurances as may
be reasonably satisfactory to Irvine that such Lender is the Lender whose
Financing Encumbrance is most senior; and (e) reimburses Irvine for its
reasonable attorneys' fees in connection with entering into such new agreement.

13.9 CONCURRENT EXERCISE. Notwithstanding any contrary
provisions of this Article 13, any Lender exercising any of its rights under
this Article 13 with regard to any Financing Encumbrance, must concurrently
exercise its rights under Article 11 of the License Agreement with regard to the
same Financing Encumbrance, it being the intent of the Parties that in order to
succeed to the rights of FirstWorld under this Agreement, a Lender must also
succeed to the rights of FirstWorld under the License Agreement and that a
Lender may not receive the benefits of this Agreement separately from the
benefits and burdens of the License Agreement.

14.

IRVINE CURE RIGHTS

14.1 PURPOSE. Irvine desires to assure, to the extent feasible,
that (a) the Equipment installed by FirstWorld in connection with the Irvine
Networks remains in place and is not removed by Lender while Irvine exercises
its remedies for a default under a Financing Encumbrance or this Agreement in
the manner described in Section 14.4, or (b) that Irvine may effectively acquire
the Equipment by paying the outstanding obligations under the Financing to the
extent provided under Section 14.5, below, and thereafter foreclosing the
Financing Encumbrance.

14.2 NOTICE OF DEFAULT. Concurrently with the giving of any
notice of any default, breach or event of default under any Financing
Encumbrance (including, without limitation, any notice of acceleration of
foreclosure of the Financing Encumbrance for any reason) to FirstWorld, or to
the party obligated thereunder if it is not FirstWorld, the Lender shall at same
time and by the same means provide a copy of such notice to Irvine at Irvine's
address for notices set forth in this Agreement, which notice shall describe in
reasonable detail the alleged default. Irvine shall provide any Lender with
written notice of any change in its address. FirstWorld agrees to provide to
Irvine a copy of any notice of change of address received by FirstWorld from

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any Lender, provided, however, that no failure by FirstWorld to provide Irvine a
copy of such notice shall adversely affect the rights of a Lender pursuant to
Article 13, above.

14.3 PRIORITY OF CURE RIGHTS. In any case where FirstWorld is in
default, has breached or there is any Event of Default, under both this
Agreement and any Financing Encumbrance, and both Lender and Irvine would
therefore have the right to exercise their respective Cure Rights hereunder,
then, notwithstanding any contrary provision of this Agreement:

14.3.1 So long as the Lender is operating or causing
FirstWorld or a third party to operate the Irvine Networks and is exercising
Lender's Cure Rights pursuant to Section 13.4, above (a) Irvine shall not be
entitled to terminate this Agreement or to exercise any of Irvine's Cure Rights
and (b) the Lender's Cure Rights shall be absolutely and unconditionally prior
and superior to Irvine's Cure Rights and Lender shall be entitled to exercise
the Lender's Cure Rights and its rights and remedies under its Financing
Encumbrance and other loan documents without any direct or indirect delay,
interference, impairment or prohibition by Irvine.

14.3.2 If (a) the Lender is exercising the Lender's Cure
Rights under Section 13.4, above, and is acting diligently to prosecute the same
to completion, or (b) the time period for exercising Lender's Cure Rights or
commencing to exercise Lender's Cure Rights pursuant to Section 13.4 above, has
not yet expired, and (c) in either such case, the Lender is not operating or
causing FirstWorld or a third party to operate the Irvine Networks, then Irvine
shall not be entitled to terminate this Agreement, but may exercise Irvine's
Cure Rights, provided that in the event of any conflict or inconsistency between
Irvine's Cure Rights and the Lender's Cure Rights, the Lender's Cure Rights
shall be superior to Irvine's Cure Rights, but only to the extent of such
conflict or inconsistency. During any such period, the Lender shall be entitled
to exercise the Lender's Cure Rights and its rights and remedies under its
Financing Encumbrance and other loan documents without any direct or indirect
delay, interference, impairment or prohibition by Irvine, except to the extent
reasonably necessary to permit Irvine to exercise Irvine's Cure Rights.

14.3.3 If the Lender fails to commence to exercise the
Lender's Cure Rights within the time periods set forth in Section 13.4, above,
or after commencing the same fails to diligently prosecute the same (including
without limitation, the Lender's failure to diligently prosecute any proceeding
to obtain possession of the Leased Premises or to acquire the Leased Premises by
foreclosure, if applicable), then Irvine shall have the right upon five (5)
business days notice to Lender to exercise Irvine's Cure Rights or to enforce
against FirstWorld all of Irvine's rights and remedies for a default under this
Agreement, or both, as Irvine may elect in its sole and absolute discretion, and
without any direct or indirect delay, interference, impairment or prohibition by
Lender.

14.4 IRVINE'S CURE RIGHTS. Subject to and in accordance with the
terms and provisions of this Article 14, upon receiving any notice of a default
under a Financing Encumbrance, Irvine shall have the right, but not the
obligation, to cure FirstWorld's default within the same cure period granted to
FirstWorld under such Financing Encumbrance, plus the additional time provided
for below, and the Lender thereunder shall accept such cure (such actions,
"Irvine's Cure," and Irvine's rights to take such actions, "Irvine's Cure
Rights"):

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<PAGE>

14.4.1 In the case of a monetary default, Irvine shall be
entitled (but not obligated) to cure such default within a cure period following
notice of such default consisting of the cure period allowed to FirstWorld (or
any other obligor under such Financing Encumbrance if FirstWorld is not the
obligor thereunder) plus an additional period of twenty (20) days; provided,
however, that if the Lender is in a position to conduct a foreclosure sale in
connection with such default prior to the expiration of said twenty (20) day
period, then Irvine's additional cure period (i.e., in addition to the cure
period allowed FirstWorld) shall be shortened from twenty (20) days to the
greater of ten (10) days or the number of days within said twenty (20) day
period prior to the date on which the Lender is in a position to conduct a
foreclosure sale.

14.4.2 In the case of any non-monetary default that
Irvine is reasonably capable of curing, Irvine shall be entitled (but not
obligated) to cure such default within a period following notice of such default
consisting of (a) the cure period allowed to FirstWorld (or any other obligor
under such Financing Encumbrance if FirstWorld is not the obligor thereunder)
under such Financing Encumbrance plus an additional thirty (30) days, or (b) if
the default is not reasonably susceptible of being cured within said thirty (30)
day period, to duly commence the cure of such non-monetary default within said
thirty (30) day period and thereafter diligently prosecute to completion the
cure of such non-monetary default and complete such cure within a reasonable
time under the circumstances, not to exceed a total of ninety (90) days after
the date a notice of such default was delivered to Irvine. Notwithstanding the
foregoing, if the Lender is in a position to conduct a foreclosure sale in
connection with such non-monetary default prior to the expiration of said thirty
(30) or ninety (90) day period, as applicable, then Irvine's additional cure
period (i.e., in addition to the cure period allowed FirstWorld) shall be
shortened from thirty (30) days or ninety (90) days, as applicable, to the
greater of ten (10) days or the number of days within said thirty (30) or ninety
(90) day period prior to the date on which the Lender is in a position to
conduct a foreclosure sale.

14.4.3 In the event that Irvine makes any payment to
Lender or otherwise expends any funds to cure any claimed default by FirstWorld
under a Financing, then FirstWorld shall be obligated upon Irvine's demand to
reimburse Irvine for all sums so expended by Irvine (including any premium over
par paid in connection with a partial release of the Irvine Network from the
lien of the Financing Encumbrance which affects any Networks in addition to
Irvine Networks, as provided in Section 14.5.1, but excluding amounts expended
in connection with Irvine's purchase of the Financing at par pursuant to Section
14.5), together with interest at an interest rate of *** percent ( *** %) per
annum, but in no event to exceed the maximum rate permitted by law, from the
date Irvine made any payment or otherwise expended funds through the date of
reimbursement.

14.4.4 Any payment made by Irvine to a Lender to cure any
claimed default shall be deemed to have been made without prejudice to
FirstWorld's or Irvine's recovery of such payment if such Lender's claim of a
default shall be determined by a court of competent jurisdiction to have been
erroneous.

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

*** CONFIDENTIAL TREATMENT REQUESTED

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14.5 PURCHASE OF FINANCING ENCUMBRANCE; SUBROGATION. In addition to
Irvine's Cure Rights as described in Section 14.4, upon receiving a notice of
default under a Financing Encumbrance, Irvine shall have the right to pay the
Financing Encumbrance (or the portion thereof determined as provided in Section
14.5.1 where the Financing which is secured by the Financing Encumbrance is
secured by assets of the obligor in addition to the Irvine Networks) in full
(including, without limitation, unless Lender is an Affiliated Lender, any
premium over par payable for a partial release as provided in Section 14.5.1,
late charges, default interest, default costs, prepayment penalties, and other
fees and charges imposed by the Lender), and in connection therewith to be
subrogated to and receive an assignment by Lender to Irvine of the rights of the
Lender against FirstWorld, including the rights of the Lender under its
Financing Encumbrance. Thereafter, Irvine shall be free to enforce its remedies
as holder of the Financing, including foreclosure of the Financing Encumbrance.

14.5.1 Any Financing Encumbrance which is given by FirstWorld
after the date of this Agreement to secure Financing which encumbers any
Networks in addition to Irvine Networks shall contain provisions permitting the
release of the Irvine Network from the lien of the Financing Encumbrance upon
payment of not more than *** % of those portions of the Financing allocable to
the Irvine Networks.

14.5.2 Irvine shall have the right (but not the obligation) to
negotiate with any Lender for an intercreditor agreement which would contain
provisions allowing Irvine to obtain, or to cause a third party who will provide
telecommunication service on the Irvine Networks and to whom Irvine may assign
its cure rights as contemplated by this Article 14 to obtain, financing for
Irvine's or said third party's acquisition of the Financing Encumbrance (or the
portion thereof determined as provided in Section 14.5.1) pursuant to Section
14.5, so long as Irvine or such assignee of Irvine is approved by Lender based
upon Lender's completion of its normal underwriting procedures. In such event:
(a) FirstWorld does not represent, warrant or guarantee that such Lender will
negotiate with Irvine or accept any of Irvine's proposals; (b) successful
completion of such negotiations shall not be a condition precedent, condition
concurrent or condition subsequent to any rights of FirstWorld or obligations of
Irvine under this Agreement, nor shall Irvine's failure to reach agreement with
such Lender constitute a default, or entitle Irvine to any remedy, hereunder;
(c) Irvine shall negotiate in good faith and shall not interfere with or in any
manner delay the closing by FirstWorld or any affiliate of FirstWorld of any
Financing; and (d) if Irvine is unsuccessful in negotiating any intercreditor
agreement, then Irvine shall have only the rights set forth in this Agreement,
and no other rights.

14.6 RIGHT TO BID AT FORECLOSURE SALE. In the event of
foreclosure of a Financing Encumbrance, Irvine shall be entitled to bid at such
sale on the same terms as, and without any priority or preference over, any
other third person bidder.

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15.

QUIET ENJOYMENT

Irvine covenants that it has the right to lease the Leased Premises to
FirstWorld and that so long as this Agreement has not been terminated,
FirstWorld shall and may peaceably and quietly have, hold and enjoy the Leased
Premises for the Term without molestation or disturbance by or from Irvine or
anyone claiming by or through Irvine or having title to the Leased Premises or
any portion thereof paramount to Irvine. In the event any Person claiming
through Irvine attempts to disturb FirstWorld's quiet enjoyment of or right to
use or possess the Leased Premises, Irvine shall utilize its best efforts to
resolve any claims adverse to FirstWorld's rights hereunder.

16.

REPRESENTATIONS, WARRANTIES AND COVENANTS

Irvine represents, warrants and covenants to FirstWorld the following:

16.1 TITLE TO LEASED PREMISES. Irvine owns good and marketable title
to the Leased Premises, and has the right to allow FirstWorld to use the Conduit
and the Leased Premises in accordance with the terms and provisions of this
Agreement.

16.2 NO LITIGATION. There is no existing or, to Irvine's knowledge,
pending or threatened litigation, suit, action or proceeding, including
condemnation proceedings, before any court or administrative agency against
Irvine, or the Leased Premises that would, if adversely determined, adversely
affect the Leased Premises or FirstWorld's ability to develop, own and operate
the Network.

17.

FORCE MAJEURE

No Party shall be considered to be in default in the performance of
any of its obligations under this Agreement (other than obligations of said
Party to pay any monetary sums due hereunder) when a failure of such performance
shall be due to an Unavoidable Delay. Nothing contained herein shall be
construed so as to require any Party to settle any strike or labor dispute in
which it may be involved. Any Party rendered unable to fulfill any of its
obligations under this Agreement by reason of an Unavoidable Delay shall give
prompt written notice of such fact to the other Party and shall exercise
reasonable diligence to remove such inability with all reasonable dispatch. If
an Unavoidable Delay shall have occurred, the Parties shall consult with one
another as soon as practicable concerning the effect of such delay upon their
performance hereunder. In the event that any Party's activity hereunder is
delayed, curtailed or prevented by any Unavoidable Delay, the time for carrying
out the activity thereby affected shall be extended for a period equal to the
total number of days during which such causes or their effects were operative,
and for such additional time, if any, as shall be necessary to make good the
time lost as a result of any Unavoidable Delay.

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18.

DEFAULTS; REMEDIES

18.1 EVENTS OF DEFAULT. The occurrence of any one or more of the
following shall be deemed to be an event of default ("Event of Default") by a
Party in the performance of its duties and obligations arising under this
Agreement.

18.1.1 A Party breaches or defaults in the performance of any
of such Party's duties or obligations arising under this Agreement involving the
payment of money, and after receiving written notice thereof from the other
Party, fails within ten (10) days from receipt of such notice to have fully
cured and corrected such breach or default.

18.1.2 A Party breaches or defaults in the performance of any
of such Party's material duties or obligations arising under this Agreement that
do not involve the payment of money, and after receiving written notice thereof
from the other Party, fails within thirty (30) days from receipt of such notice
(or such longer time as may reasonably be required to cure the default so long
as the defaulting Party commences to cure such failure within such thirty (30)
day period and diligently prosecutes such cure to completion) to have fully
cured and corrected such breach or default;

18.1.3 A Party makes an assignment of its rights hereunder for
the benefit of its creditors.

18.1.4 The filing by or against a Party of a petition to have
a Party adjudged a Chapter 7 debtor under the Bankruptcy Code or to have debts
discharged or a petition for reorganization or arrangement under any law
relating to bankruptcy (unless, in the case of a petition filed against a Party,
the same is dismissed within thirty (30) days).

18.1.5 A Person (other than the other Party) obtains an order
or decree in any court of competent jurisdiction enjoining or prohibiting a
Party from substantially performing its obligations under this Agreement, and
such decree is not vacated within sixty (60) days after the granting thereof.

18.1.6 All or substantially all of the assets of a Party are
assumed by a trustee or other Person pursuant to a judicial proceeding, unless
possession or control of its assets is returned to such Party within sixty (60)
days.

18.1.7 Any representation, warranty, certification or
statement made in this Agreement by a Party shall prove to have been incorrect
in any material respect when made.

18.1.8 Any Event of Default by a Party of its obligations
under the License Agreement.

18.2 WAIVER. No waiver of any Event of Default shall be valid or
effective unless in writing and signed by the waiving Party. Any waiver of any
one Event of Default shall not constitute, or be construed as creating, a waiver
of any other Event of Default.

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18.3 REMEDIES. Upon the occurrence of an Event of Default, then,
subject to the rights of Lenders under Articles 13 and 14, the non-defaulting
Party shall have all remedies available at law or in equity, except as
specifically provided herein. Such remedies shall include, without limitation:

18.3.1 Irvine may terminate FirstWorld's right to possession
of the Leased Premises by any lawful means, in which case this Agreement shall
terminate and FirstWorld shall immediately surrender possession of the Leased
Premises to Irvine. Such termination shall not affect any accrued obligations
of FirstWorld under this Agreement. Upon termination, Irvine shall have the
right to retake possession of the Leased Premises. Irvine shall also be entitled
to recover from FirstWorld:

(a) The worth at the time of award of the unpaid rent
and additional rent which had been earned at the time of termination;

(b) The worth at the time of award of the amount by
which the unpaid rent and additional rent which would have been earned after
termination until the time of award exceeds the amount of such loss that
FirstWorld proves could have been reasonably avoided;

(c) The worth at the time of award of the amount by
which the unpaid rent and additional rent for the balance of the Term after the
time of award exceeds the amount of such loss that FirstWorld proves could be
reasonably avoided;

(d) Any other amount necessary to compensate Irvine
for all the detriment proximately caused by FirstWorld's failure to perform its
obligations under this Agreement or which in the ordinary course of things would
be likely to result from FirstWorld's default, including, but not limited to,
the cost of recovering possession of the Leased Premises, commissions and other
expenses of reletting, including necessary repair, reasonable attorneys' fees,
and any other reasonable costs; and

(e) At Irvine's election, all other amounts in
addition to or in lieu of the foregoing as may be permitted by law.

The term "rent" as used in this Agreement shall be deemed to mean the Rent and
all other sums required to be paid by FirstWorld to Irvine pursuant to the terms
of this Agreement. Any sum, other than Rent, shall be computed on the basis of
the average monthly amount accruing during the twenty-four (24) month period
immediately prior to default, except that if it becomes necessary to compute
such rental before the twenty-four (24) month period has occurred, then the
computation shall be on the basis of the average monthly amount during the
shorter period. As used in subparagraphs (a) and (b) above, the "worth at the
time of award" shall be computed by allowing interest at the rate of *** percent
( *** %) per annum. As used in subparagraph (c) above, the "worth at the time
of award" shall be computed by *** the amount at the ***

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rate of the Federal Reserve Bank of San Francisco at the time of award ***
percent ( *** %). For purposes of this Section 18.3.1, Rent shall be assumed to
equal, on a quarterly basis, the average of the quarterly Rent payments made by
FirstWorld hereunder for the two year period preceding FirstWorld's default.

18.3.2 Irvine may elect not to terminate FirstWorld's right
to possession of the Leased Premises, in which event Irvine may continue to
enforce all of its rights and remedies under this Agreement, including the
right to collect all rent as it becomes due. Efforts by Irvine to maintain,
preserve or relet the Leased Premises, or the appointment of a receiver to
protect the Irvine's interests under this Agreement, shall not constitute a
termination of the FirstWorld's right to possession of the Leased Premises.
In the event that Irvine elects to avail itself of the remedy provided by
this Section 18.3.2, Irvine shall not unreasonably withhold, condition or
delay its consent to an assignment or subletting of the Leased Premises
subject to the reasonable standards for and other provisions related to
Irvine's consent as are contained in this Agreement.

18.3.3 The non-defaulting Party shall not be under any
obligation to observe or perform any covenant of this Agreement on its part
to be observed or performed which accrues after the date of any default by
the other Party unless and until the default is cured by the defaulting
Party, other than those provisions which are for the benefit of any Lender.

18.3.4 No delay or omission of either Party to exercise any
right or remedy shall be construed as a waiver of the right or remedy or of
any default. The acceptance by Irvine of rent shall not be a (i) waiver of
any preceding breach or default by FirstWorld of any provision of this
Agreement, other than the failure of FirstWorld to pay the particular rent
accepted, regardless of Irvine's knowledge of the preceding breach or default
at the time of acceptance of rent, or (ii) a waiver of Irvine's right to
exercise any remedy available to Irvine by virtue of the breach or default.
The acceptance of any payment from a debtor in possession, a trustee, a
receiver or any other Person acting on behalf of a Party or its estate shall
not waive or cure a default under this Agreement. No payment by FirstWorld or
receipt by Irvine of a lesser amount than the rent required by this Agreement
shall be deemed to be other than a partial payment on account of the earliest
due rent, nor shall any endorsement or statement on any check or letter be
deemed an accord and satisfaction and Irvine shall accept the check or
payment without prejudice to Irvine's right to recover the balance of the
rent or pursue any other remedy available to it. No act or thing done or not
done by FirstWorld or Irvine or their agents during the Term shall be deemed
a surrender or an acceptance of a surrender of the Leased Premises, and no
agreement to accept a surrender shall be valid unless in writing and signed
by Irvine and consented to by each Lender.

18.4 LATE PAYMENTS. Any Rent or other sums due under this
Agreement that are not paid to Irvine within five (5) days of the date when due
shall bear interest at the rate of *** % per annum, but in no event to exceed
the maximum rate permitted by law, from the date

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due until fully paid. The payment of interest shall not cure any default by
FirstWorld under this Agreement. In addition, FirstWorld acknowledges that the
late payment by FirstWorld to Irvine of Rent or other sums will cause Irvine to
incur costs not contemplated by this Agreement, the exact amount of which will
be extremely difficult and impracticable to ascertain. Those costs may include,
but are not limited to, administrative, processing and accounting charges, and
late charges which may be imposed on Irvine by the terms of other agreements to
which Irvine is a party. Accordingly, if any rent due from FirstWorld shall not
be received by Irvine or Irvine's designee within five (5) days after the date
due, then FirstWorld shall pay to Irvine, in addition to the interest provided
above, a late charge in the amount of *** Dollars ($ *** ) for each delinquent
payment. Acceptance of a late charge by Irvine shall not constitute a waiver of
FirstWorld's default with respect to the overdue amount, nor shall it prevent
Irvine from exercising any of its other rights and remedies.

18.5 RIGHT TO PERFORM. All covenants and agreements to be
performed by either Party under this Agreement shall be performed at such
Party's sole cost and expense and without any abatement of rent or right of
set-off. If either Party fails to pay any sum of money, other than rent, or
fails to perform any other act on its part to be performed under this Agreement,
and the failure continues beyond any applicable grace period set forth in this
Agreement, then in addition to any other available remedies, the other Party
may, at its election make the payment or perform the other act on the part of
the Party which failed to pay or perform. Either Party's election to make a
payment or perform an act on the other Party's part shall not give rise to any
responsibility of the paying or performing Party to continue making the same or
similar payments or performing the same or similar acts. Any Party which fails
to pay any sum of money or perform any act required of it hereunder shall,
promptly upon demand by the other Party, reimburse the other Party for all sums
paid by the other Party, if any, and all necessary incidental costs, together
with interest at the rate of *** % per annum, but in no event to exceed the
maximum rate permitted by law, from the date of the payment by the other Party.
Each Party shall thereafter have the same rights and remedies for a failure to
pay those amounts as it would have in the event of a monetary default by the
other Party.

18.6 WAIVER OF JURY TRIAL. IRVINE AND FIRSTWORLD EACH
ACKNOWLEDGES THAT IT IS AWARE OF AND HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE
WITH RESPECT TO ITS RIGHTS TO TRIAL BY JURY, AND EACH PARTY DOES HEREBY
EXPRESSLY AND KNOWINGLY WAIVE AND RELEASE ALL SUCH RIGHTS TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY HERETO AGAINST
THE OTHER (AND/OR AGAINST ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, OR
SUBSIDIARY OR AFFILIATED ENTITIES) ON ANY MATTERS WHATSOEVER ARISING OUT OF OR
IN ANY WAY CONNECTED WITH THIS AGREEMENT, FIRSTWORLD'S USE OR OCCUPANCY OF THE
LEASED PREMISES, AND/OR ANY CLAIM OF INJURY OR DAMAGE.

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18.7 LIMITATION. The obligations of Irvine hereunder do not
constitute the personal obligations of the individual partners, members,
trustees, directors, officers or shareholders of Irvine. Except for the
obligations of FWC pursuant to the Guaranty to be executed and delivered by FWC
in favor of Irvine concurrently with the execution and delivery of this
Agreement, the obligations of FirstWorld hereunder do not constitute the
personal obligations of the individual partners, members, trustees, directors,
officers or shareholders of FirstWorld.

18.8 DAMAGES LIMITATION. Neither Party shall be entitled to recover
from the other Party any award of punitive damages, or any award for profits
lost by such Party on account of the other Party's failure to perform its
obligations under this Agreement (other than the right of Irvine to recover
unpaid Rent due or Rent which would have become due under this Agreement after a
breach hereof by FirstWorld). Without limiting the generality of the foregoing,
the foregoing waiver of the right to recover lost profits shall apply (a) to any
claims by FirstWorld that it lost Customers or potential Customers due to a
breach by Irvine and (b) to any claims by Irvine that it lost tenants or
potential tenants for its properties due to a breach by FirstWorld. The
foregoing limitation shall not, however, be construed as a waiver of any rights
of Irvine to recover sums expended pursuant to Section 6.2, above.

19.

PROTECTION OF CONFIDENTIAL INFORMATION

19.1 DESIGNATION OF CONFIDENTIAL INFORMATION. Any Confidential
Information submitted to either Party by or on behalf of the other Party or its
Affiliates shall be labeled as "Proprietary" or "Confidential" by use of a
prominent legend, label or sticker, except that Pre-Authorized Confidential
Information need not be so labeled.

19.2 OBLIGATIONS OF CONFIDENTIALITY. Each Party shall treat and
hold the Confidential Information in confidence and shall undertake the
following obligations with respect thereto:

19.2.1 Each shall keep confidential all Confidential
Information disclosed to it, in accordance herewith, and to protect the
confidentiality thereof, in the same manner in which it protects the
confidentiality of similar information and data of its own (at all times
exercising at least a reasonable degree of care in the protection of
Confidential Information); provided, however, that neither shall have any
obligation with respect to the use or disclosure to others of any Confidential
Information that can be established to have: (a) been known publicly; (b) been
known generally in the industry before communication; (c) become known publicly,
without fault on the part of either Party; (d) been known otherwise before
communication; (e) been received without any obligation of confidentiality from
a source (other than a Party or its Affiliates) lawfully having possession of
such information; or (f) been required to be disclosed by law or court order;
(g) been reasonably necessary to disclose in connection with the enforcement of
a Party's rights under this Agreement; (h) been reasonably necessary to disclose
in connection with a Financing, a Transfer, a borrowing by FWC or FirstWorld,
the sale of shares of FirstWorld or FWC, or any similar transaction, whether of
FirstWorld, FWC or any Affiliate of either entity; or (i) been reasonably
necessary to disclose in connection with any

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<PAGE>

financing, sale of shares, transfer of a substantial portion of the assets of,
or any similar transaction of Irvine or any of its Affiliates.

19.2.2 All Confidential Information which may be furnished to
a Party shall continue to be the property of the Party furnishing the same, or
the Affiliate submitting such Confidential Information on such Party's behalf.

19.2.3 No rights or licenses, express or implied, are hereby
granted to any Confidential Information, including without limitation, any
patents, trademarks, service marks, trade names, copyrights or trade secrets, as
a result of or related to this Agreement.

20.

ARBITRATION

Any dispute between Irvine and FirstWorld under this Agreement shall
be resolved by binding arbitration by JAMS/ENDISPUTE, or its successor, in
Orange, California ("JAMS") as provided in this paragraph; provided that either
Party shall retain the right to pursue any equitable remedy available to it by
filing a separate action in a court of competent jurisdiction. Within ten (10)
business days following submission of any such claim or dispute to JAMS, JAMS
shall designate three (3) arbitrators and each Party may, within five (5)
business days thereafter, veto one of the three persons so designated. If two
different designated arbitrators have been vetoed, the third arbitrator shall
hear and decide the matter. If the Parties both veto the same arbitrator, the
two remaining arbitrators shall choose a third arbitrator. Any arbitration
pursuant to this paragraph shall be decided within sixty (60) days of submission
to JAMS. The decision of the arbitrator shall be final and binding on all
Parties. The arbitrator shall have the right to order such discovery as the
arbitrator deems reasonable in connection with such arbitration. All costs
associated with arbitration (including, without limitation, reasonable
attorneys' fees) shall be awarded to the prevailing Party as determined by the
arbitrator. Notice of the demand for arbitration may be filed by either Party
to this Agreement. The award rendered by the arbitrators shall be final, and
judgment may be entered upon it in accordance with applicable law in any court
having jurisdiction thereof.

21.

NO BROKER

Irvine and FirstWorld each represents and warrants that it did not
engage any broker or finder in connection with this Agreement and that no Person
is entitled to any commission or finder's fee on account of any agreements or
arrangements made by such Party with any broker or finder. Each Party shall
indemnify the other Party against any breach of the foregoing representation by
the indemnitor.

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22.

SUBORDINATION

FirstWorld accepts the Leased Premises subject and subordinate to any
mortgage, deed of trust or other lien presently existing upon all or any portion
of the same, but FirstWorld agrees that the holder or beneficiary of any such
mortgage, deed of trust or lien shall have the right at any time to subordinate
such mortgage, deed of trust or other lien to this Agreement on such terms and
subject to such conditions as such holder or beneficiary may deem appropriate in
its discretion. This provision is hereby declared to be self-operative and no
further instrument shall be required to effect such subordination of this
Agreement, provided that FirstWorld shall upon request execute an instrument
submitted by Irvine confirming the same. FirstWorld agrees to subordinate its
rights under this Agreement to any mortgage, deed of trust or other lien created
after the effective date of this Agreement affecting the Leased Premises so long
as in connection with such subordination the holder of such mortgage, deed of
trust or other lien agrees in writing that in the event of the foreclosure
thereof this Agreement shall not be terminated as to any portion of the Leased
Premises affected and encumbered by such mortgage, deed of trust or other lien
and the holder thereof shall recognize the rights of FirstWorld created by this
Agreement as to the portion of the Leased Premises encumbered by such mortgage,
deed of trust or other lien, which recognition agreement shall be in a form
reasonably acceptable to FirstWorld and such holder.

23.

WAIVERS

Failure of either Party to complain of any act or omission on the part
of the other Party shall not be deemed a waiver by the noncomplaining Party of
any of its rights under this Agreement. No waiver by either Party at any time,
express or implied, of any breach of any provisions of this Agreement shall be a
waiver of a breach of any other provision of this Agreement or a consent to any
subsequent breach of the same or any other provision. No acceptance by Irvine
of any partial payment shall constitute an accord or satisfaction but shall only
be deemed a part payment on account.

24.

MEMORANDUM OF AGREEMENT; UCC FILING

Concurrently with the execution and delivery of this Agreement, the
Parties shall promptly execute, acknowledge and record a Memorandum of Lease in
the form of Appendix 7 attached hereto and made a part hereof. Upon the request
of either Party, the other Party shall promptly execute and deliver (and the
Parties shall file with the Secretary of State), a UCC statement in form
reasonably satisfactory to both Parties evidencing the rights and interests of
the Parties pursuant to this Agreement. Upon the request of either Party from
time to time, the other Party shall execute and deliver additional UCC
statements to be filed with the Secretary of State to cover space within
Additional Available Spectrum Conduit and Available Other Conduit which is added
to the Leased Premises pursuant to the terms of this Agreement.

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25.

ESTOPPEL CERTIFICATES

At any time and from time to time, upon not less than twenty (20)
days' prior written request (an "Estoppel Certificate Request") by either Party
to this Agreement or any Lender to FirstWorld (the "Requesting Party"), the
other Party to this Agreement (the "Certifying Party") shall execute,
acknowledge and deliver an Estoppel Certificate in reasonable form to the
Requesting Party (or directly to a third party whose name and address are
provided by the Requesting Party). Any Estoppel Certificate may be relied upon
by any third party (but not by the Requesting Party) to whom an Estoppel
Certificate is required to be directed. If the Certifying Party fails to execute
and deliver within such twenty (20) day period to the Requesting Party (or its
attorneys or the third party(ies) designated by such Requesting Party) an
Estoppel Certificate, setting forth with reasonable specificity any alleged
exceptions to the statements requested to be contained in such Estoppel
Certificate, then the Certifying Party shall be deemed for all purposes, whether
or not this Agreement has been terminated or is otherwise in full force and
effect, to have executed and delivered to the third party and the Requesting
Party an Estoppel Certificate, dated as of the effective date of the Estoppel
Certificate Request, certifying that this Agreement is in full force and effect,
that there are no amendments or modifications hereof and that the Requesting
Party is not in default under this Agreement.

26.

MISCELLANEOUS

26.1 NOTICES. Any notice, request, demand, consent, approval or other
communication required or permitted hereunder or by law shall be given in
writing, addressed as follows:

If to Irvine: The Irvine Company
550 Newport Center Drive
Newport Beach, CA 92660
Attn: Vice President, Industrial Operations

With a copy to: The Irvine Company
550 Newport Center Drive
Newport Beach, CA 92660
Attn: General Counsel - Office

If to FirstWorld: FirstWorld Orange Coast
9333 Genessee Avenue, Suite 200
San Diego, CA 92121
Attn: G. Bradford Saunders

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With a copy to: FirstWorld Communications
9333 Genessee Avenue, Suite 200
San Diego, CA 92121
Attn: General Counsel

Any Party may from time to time, by written notice to the other, designate a
different address which shall be substituted for the address specified above or
designate additional Parties to receive copies of notices. Any notice shall be
delivered either personally, by certified mail (return receipt requested), by
Federal Express or similar overnight courier or by facsimile transmission. If
personally delivered, notices shall be deemed received at the time of delivery.
If sent by certified mail, return receipt requested, notices shall be deemed
fully delivered and received upon delivery or refusal of delivery. If delivered
by Federal Express or similar overnight courier, notices shall be deemed fully
delivered and received upon receipt or two (2) Business Days after deposited
with such courier prior to its deadline for next Business Day delivery. If sent
by facsimile transmission, notices shall be deemed fully delivered and received
upon receipt provided that the transmission is by a facsimile machine which
confirms completed transmission, and a copy of the notice is simultaneously sent
by another method permitted under this Agreement. Except as otherwise expressly
provided herein, notices shall be deemed fully delivered and received at the
time of actual receipt.

26.2 DOCUMENTS IN RECORDABLE FORM. Wherever this Agreement
requires either Party to deliver to the other a document in recordable form,
both Parties shall be deemed to have consented to the recording of such
document, at the sole expense of the Party that elects to record it. For
purposes of this Agreement, FirstWorld shall be deemed to be the Party requiring
recordation of a memorandum of this Agreement and UCC statements contemplated
under Article 24.

26.3 FURTHER ASSURANCES. Each Party shall fully support and
cooperate with the other Party in giving effect to the purpose and intent of
this Agreement, including, without limitation, in a Party's efforts to obtain
from any Governmental Authority or any other Person any permit, entitlement,
approval, authorization or other right necessary or convenient in connection
with such Party's activities or operations, provided that the cooperation
required under this Section 26.3 shall be at no expense to the Party requested
to provide its cooperation. Without limiting the generality of the foregoing,
each Party agrees to execute and deliver such further documents, and perform
such further acts, as may be reasonably necessary to achieve the intent of the
Parties as set forth in this Agreement.

26.4 PERFORMANCE UNDER PROTEST. If at any time a dispute shall
arise as to the amount of any payment to be made by a Party to the other under
this Agreement, then the Party against whom the obligation to pay is asserted
shall pay the entire amount billed, but shall have the right to make payment
"under protest." The Party making the payment shall continue to have the right
to seek recovery of such sum. To the extent that it shall be determined that
the Party making the payment "under protest" was not required to make such
payment, such Party shall be entitled to recover such sum or so much of such sum
as such Party was not legally required to pay pursuant to this Agreement.

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26.5 NO THIRD PARTY BENEFICIARIES. Except as to the permitted
successors and assigns of each Party, nothing in this Agreement shall be deemed
to confer upon any Person (other than Irvine, FirstWorld or Lenders) any right
to insist upon, or to enforce against Irvine or FirstWorld, the performance or
observance by either Party of its obligations under this Agreement.

26.6 INTERPRETATION. No inference in favor of or against any
Party shall be drawn from the fact that such Party has drafted any portion of
this Agreement. The Parties have both participated substantially in the
negotiation, drafting and revision of this Agreement with representation by
counsel and such other advisors as they have deemed appropriate. The words
"include" and "including" shall be construed to be followed by the words:
"without limitation."

26.7 DELIVERY OF DRAFTS. Neither Irvine nor FirstWorld shall be
bound by this Agreement unless and until each Party shall have executed at least
one counterpart of this Agreement and delivered such executed counterpart to the
other Party. The submission of draft(s) of this Agreement or comment(s) on such
drafts shall not bind either Party in any way and such draft(s) and comment(s)
shall not be considered in interpreting this Agreement.

26.8 HEADINGS. Article and section headings have been inserted
in this Agreement as a matter of convenience and for reference only. Such
section headings are not a part of this Agreement and shall not be used in the
interpretation of any provision of this Agreement.

26.9 CUMULATIVE REMEDIES. Subject to the express limitations set
forth in this Agreement, the remedies to which either Party may resort under
this Agreement are cumulative and are not intended to be exclusive of any other
remedies to which such Party may lawfully be entitled in the event of any breach
or threatened breach by the other Party of any provision of this Agreement.

26.10 ENTIRE AGREEMENT. This Agreement, including all exhibits
and appendices hereto, together with the License Agreement, constitutes the
entire agreement between the Parties hereto pertaining to the subject matter
thereof, and the final, complete and exclusive expression of the terms and
conditions thereof. All prior agreements, representations, negotiations and
understandings of the Parties hereto, oral or written, express or implied, are
hereby superseded and merged herein.

26.11 AMENDMENTS. No addition to or modification of any provision
contained in this Agreement shall be effective unless fully set forth in a
writing signed by Irvine and FirstWorld.

26.12 PARTIAL INVALIDITY. If any term or provision of this
Agreement or the application of such term or provision to any Party or
circumstance shall to any extent be invalid or unenforceable, then the remainder
of this Agreement, or the application of such term or provision to Persons or
circumstances other than those as to which it is invalid or unenforceable, shall
not be affected by such invalidity or unenforceability, and each remaining term
and provision of this Agreement shall be valid and enforceable to the fullest
extent permitted by Applicable Law.

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26.13 SUCCESSORS AND ASSIGNS. This Agreement shall bind and
benefit Irvine and FirstWorld and their successors and assigns, but the
foregoing shall not limit or supersede any transfer restrictions contained in
this Agreement.

26.14 GOVERNING LAW. This Agreement and its interpretation and
performance shall be governed, construed and regulated by the Applicable Law of
the State of California, without regard to principles of conflict of Applicable
Law.

26.15 COUNTERPARTS. This Agreement may be executed in one or more
duplicate counterparts and when signed by all of the Parties listed below shall
constitute a single binding agreement.

26.16 TIME PERIODS. Whenever this Agreement requires either Party
to perform any action within a specified period, or requires that a particular
event occur within a specified period, if the last day of such period is not a
Business Day, then the period shall be deemed extended through the close of
business on the first Business Day following such period as initially specified.
This paragraph shall in no event delay or defer the effective date of any Rent
adjustment or the commencement of any period with respect to which interest on a
payment shall accrue or the date for payment of any Rent.

26.17 WAIVERS. The consent by one Party to any act by another
Party shall not be deemed to imply consent, or waiver of the necessity of
obtaining such consent, for the same or any similar acts in the future. No
waiver or consent shall be implied from silence or from any failure of a Party
to act, except as otherwise specified in this Agreement.

26.18 NEGATION OF PARTNERSHIP. The covenants, obligations and
liabilities of the Parties are intended to be several and not joint or
collective and nothing herein contained shall ever be construed to create an
association, joint venture, trust or partnership, or to impose a trust or
partnership covenant, obligation or liability on or with regard to the Parties.
Each Party shall be individually responsible for its own covenants, obligations
and liabilities as herein provided. No Party shall be under the control of or
shall be deemed to control the other Party. No Party shall be the agent of or
have a right or power to bind the other Party without its express written
consent, except as expressly provided in this Agreement.

26.19 ATTORNEYS' FEES. Each Party shall bear its own attorney's
fees incurred in relation to the negotiation and execution of this Agreement.
In the event of any action instituted between the Parties in connection with
this Agreement, the prevailing Party shall be entitled to recover from the
losing Party, the prevailing Party's costs and expenses, including reasonable
attorneys' fees. The prevailing Party for the purpose of this paragraph shall
be determined by the trier of the facts.

26.20 RELATIONSHIPS. Irvine and FirstWorld acknowledge and agree
that the relationship between them is solely that of independent contractors,
and nothing herein shall be construed to constitute the Parties as
employer/employee, partners, joint venturers, co-owners, or otherwise as
participants in a joint or common undertaking. Neither Party, nor its
employees, agents or representatives shall have any right, power or authority to
act or create any obligation, express or implied, on behalf of the other.

40
<PAGE>

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
day and year first above written.

FIRSTWORLD ORANGE COAST,
a California corporation

By: /s/ Robert E. Randall
-----------------------------------
Name: Robert E. Randall
Title: Executive Vice President & Chief
Operating Officer

By: /s/ G. Bradford Saunders
-----------------------------------
Name: G. Bradford Saunders
Title: Senior Vice President

THE IRVINE COMPANY,
a Delaware corporation

By: /s/ Richard G. Sim
----------------------------------
Richard G. Sim,
Executive Vice President

By: /s/ Clarence W. Barker
----------------------------------
Clarence W. Barker, President
of Irvine Industrial Company, a
division of The Irvine Company

41
<PAGE>

Appendix 1

GLOSSARY OF DEFINED TERMS

<PAGE>

Appendix 1

GLOSSARY OF DEFINED TERMS

(CONDUIT LEASE)

"Addition Memorandum" means a memorandum in the form of Appendix 5
adding space within Additional Available Spectrum Conduit or Available Other
Conduit to the Leased Premises under the Conduit Lease, or Additional Buildings
to the License Agreement.

"Additional Areas" means other areas which Irvine may develop within
the cities of Irvine, Newport Beach and Tustin and within certain unincorporated
areas of the County of Orange.

"Additional Area Buildings" means any additional commercial,
industrial and retail buildings which Irvine owns and develops within those
Additional Areas as to which Available Other Conduit is added to the Leased
Premises in accordance with the terms and provisions of the Conduit Lease.

"Additional Available Spectrum Conduit" means additional multi-tube
telecommunications conduit located within the Additional Spectrum of
substantially similar capacity and configuration to the Existing Available
Spectrum Conduit, or such other configuration as may be required under the
Conduit Lease.

"Additional Buildings" means all of the Additional Spectrum Buildings,
the Additional Area Buildings and the Additional Other Buildings, to the extent
added to this Agreement pursuant to the terms and provisions hereof.

"Additional License Fee Base" shall have the meaning set forth in
Section 6.1 of the License Agreement.

"Additional Networks" means any Networks established by FirstWorld to
service any Additional Areas.

"Additional Other Buildings" means any additional commercial,
industrial and retail buildings which Irvine owns and which are now existing or
are hereafter constructed, and which are located in the State of California but
not in the Spectrum or any Additional Areas as to which space within Available
Other Conduit is added to the Leased Premises in accordance with the terms and
provisions of the Conduit Lease.

"Additional Spectrum" means additional areas which Irvine intends to
develop within or as part of the Irvine Spectrum as more particularly shown on
the map attached hereto as Appendix 3 or located adjacent to the Existing
Spectrum.

"Additional Spectrum Buildings" means any additional commercial,
industrial and retail buildings which Irvine develops and owns within the
Additional Spectrum.

"Adjusted Gross Combined Revenue" means Adjusted Gross Revenue plus,
for the relevant period, the remainder, if any, of the Other Building Gross
Revenues for the relevant

<PAGE>

period less the sum of the following for the same period, to the extent
derived from Customers occupying the applicable Additional Other Buildings or
Users providing services through FirstWorld or one or more of its Affiliates
to the applicable Additional Other Buildings: (i) Service Provider Payments;
and (ii) FirstWorld Consulting Revenues.

"Adjusted Gross Revenue" means, for the relevant period, the
remainder, if any, of the Gross Revenues for the relevant period less the sum of
the following for the same period (a) Third Party Building Access Payments paid
with regard to buildings in the Spectrum and any Additional Areas as to which
space in Available Other Conduit has been added to the Leased Premises in
accordance with the terms and provisions of the Conduit Lease; and (b) to the
extent derived from Customers occupying buildings within the Spectrum and any
such Additional Areas or from Users providing services through the Irvine
Networks to such buildings: (i) Service Provider Payments; and (ii) FirstWorld
Consulting Revenues.

"Affiliate" means, with respect to Irvine, FirstWorld or any other
Person, any other Person that directly or indirectly through one or more
intermediaries controls, is controlled by or is under common control with the
Person specified, or who holds or beneficially owns fifty percent (50%) or more
of the equity interest in the Person specified or fifty percent (50%) or more of
any class of voting securities of the Person specified.

"Affiliated Lender" means any Lender which is also an Affiliate of
FirstWorld.

"Agreement" means this Conduit Lease.

"Applicable Law" means any applicable law, statute, ordinance,
regulation, rule, notice requirement, court decision, agency guideline,
principle of law and order of any Governmental Authority, including, without
limitation, those related to energy, the environment, motor vehicle safety,
public utility, zoning, building and health codes, occupational safety and
health and laws respecting employment practices, employee documentation, terms
and conditions of employment, and wages and hours.

"Available Conduit" means the Available Spectrum Conduit together with
the Available Other Conduit.

"Available Other Conduit" means telecommunications conduit which
Irvine installs in Additional Areas and as to which space within the same is
added to the Leased Premises in accordance with the terms and provisions of the
Conduit Lease.

"Available Spectrum Conduit" means the Existing Available Spectrum
Conduit together with the Additional Available Spectrum Conduit to the extent
constructed from time to time.

"Basic Percentage Rent" shall have the meaning set forth in Section
4.2 of the Conduit Lease.

"Bonus Percentage Rent" shall have the meaning set forth in Section
4.3 of the Conduit Lease.

<PAGE>

"Buildings" means the Existing Spectrum Buildings together with any
Additional Buildings to the extent added to the License Agreement pursuant to
the terms thereof.

"Business Day" means any day which is not a Saturday, a Sunday or a
day on which national banks are obligated by law, regulation or executive order
to be closed.

"Cable" means all fiber optic cable installed in the Available Conduit
by or on behalf of FirstWorld or any of its Affiliates whether installed within
Conduit or extending into a building to be connected to Equipment located
therein.

"Certifying Party" shall have the meaning set forth in Article 25 of
this Agreement.

"City" means the City of Irvine, provided, however, that with regard
to any Additional Areas, the City shall mean the city within which the
applicable Additional Area is located, or if such Additional Area is in an
unincorporated area of a county, the county within which the same is located.

"Commencement Date" is defined in Article 3 of this Agreement.

"Condemnation" means any action in eminent domain, brought with regard
to the Leased Premises or any portion thereof, or with regard to any Building or
any portion thereof, by any Governmental Authority, or any conveyance to a
Governmental Authority in lieu of, or in settlement of, a pending or threatened
action in eminent domain.

"Conduit" means ** tubes being a portion of the Available Conduit
together with the pull boxes serving such tubes within which FirstWorld utilizes
space, and together with all additional conduit which may be installed by
FirstWorld within the Spectrum and within any Additional Areas (including
building entrance conduit systems), and any alterations, repairs, modifications
and improvements of any of the same, provided, however, that for those portions
of the Available Conduit which include more than *** tube, the Conduit shall
consist of: (a) where the Available Conduit includes *** tubes, *** tube and ***
tube and (b) wherever the Available Conduit includes *** tubes, *** tubes.

"Conduit Lease" means that certain Agreement For Lease of
Telecommunications Conduit made and entered into by and between Irvine and
FirstWorld and dated as of March 5, 1998.

"Confidential Information" means all information and documents which
either party furnishes to the other on or after the date of this Agreement,
which such party designates as proprietary or confidential or which is
Pre-Authorized Confidential Information not required to be so designated.

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

*** CONFIDENTIAL TREATMENT REQUESTED

<PAGE>

"CPI" means the Consumer Price Index, All Urban Consumers, Subgroup
"All Items" for the Los Angeles-Anaheim-Riverside Region (Base Period 1993-95 =
100), which is currently being published monthly by the United States Department
of Labor, Bureau of Labor Statistics. If, however, the CPI is changed, revised
or discontinued for any reason, there shall be substituted in lieu thereof, and
the term "CPI" shall thereafter refer to, the most nearly comparable official
price index of the United States Government so as to obtain substantially the
same result as would have been obtained had the original CPI not been changed,
revised or discontinued, which alternative index shall be selected by Irvine and
shall be subject to FirstWorld's written approval.

"Customers" means any Person who subscribes with FirstWorld for
Network services as an end user (as opposed to Users who contract for access to
a Network in order to provide telecommunications services to their own
customers).

"Equipment" means switches, connectors, amplifiers, and other
equipment located in a building and not within the Conduit and required to
connect Cable to a building and/or provide telecommunications services to the
occupants thereof.

"Equipment Space" means a reasonable amount of equipment room space in
each Building, not to exceed 100 square feet, that is sufficient to enable
FirstWorld to install the Cable and Equipment needed by FirstWorld to deliver
the services described by this Agreement, which Equipment Space shall be in a
reasonable configuration taking into account the size and shape of the equipment
room in which the same will be located and the number of service providers
requiring space within such equipment room. Once Equipment is installed in any
Building, Equipment Space shall exclude equipment room space not utilized by
FirstWorld.

"Estoppel Certificate Request" shall have the meaning set forth in
Article 25 of this Agreement.

"Event of Default" shall have the meaning set forth in Section 18.1 of
this Agreement.

"Existing Available Spectrum Conduit" means a multi-tube
telecommunications conduit which Irvine has constructed within the Existing
Spectrum at the approximate locations shown on Appendix 4 attached hereto.

"Existing Spectrum" means certain developed areas in the area commonly
referred to as the Irvine Spectrum and more particularly shown on the map
attached hereto as Appendix 2.

"Existing Spectrum Buildings" means the commercial, industrial and
retail buildings which are owned by Irvine within the Existing Spectrum and
which are listed on Appendix 4 attached to the License Agreement.

"Fair Market License Fee" shall have the meaning set forth in Section
6.1.4. of the License Agreement.

"Financing" means any mortgage financing, project financing,
refinancing or borrowing, or any sale and leaseback transaction in which
FirstWorld has the right to repurchase

<PAGE>

the Leased Premises, secured by a Financing Encumbrance, the proceeds of which
are utilized in whole or in part to finance the cost of the design,
construction, replacement, improvement, maintenance or operation of one or more
Irvine Networks.

"Financing Encumbrance" means any mortgage, deed of trust, assignment,
security agreement, pledge, financing statement, conveyance and lease (in the
case of a sale and leaseback transaction) or any other instrument(s) or
agreement(s) intended to grant security for any financing, that encumbers all of
the Leased Premises and FirstWorld's rights under the License Agreement and the
Conduit Lease (or any portion of the Leased Premises together with but not
separate from FirstWorld's rights under the License Agreement and the Conduit
Lease to the extent affecting Buildings and areas, respectively, served by the
portion of the Leased Premises encumbered by the applicable Financing
Encumbrance) (as well as such other assets or rights as may be encumbered by
such instruments) as the same may be renewed, modified, consolidated, amended,
extended or assigned from time to time.

"FirstWorld" means FirstWorld Orange Coast, a California corporation.

"FirstWorld Consulting Revenues" means payment for service related to
advice or other provision of consulting services which does not involve payment
for the transmission of information over a Network.

"FirstWorld Marks" shall have the meaning set forth in Section 19.1 of
the License Agreement.

"Fiscal Year" means the fiscal year of FirstWorld, ending on September
30, as the same may be changed from time to time.

"FWC" means FirstWorld Communications, Inc., a California corporation.

"Governmental Authority" means any national, state or local government
(whether domestic or foreign), any political subdivision thereof or any other
governmental, quasi-governmental, judicial, public or statutory instrumentality,
authority, body, agency, bureau or entity.

"Gross Revenues" means, for any period, all revenues received by
FirstWorld or any of its Affiliates, assignees or sublessees with respect to the
operation of the Irvine Networks during such period that are attributable to the
following derived from Customers occupying buildings within the Spectrum and any
Additional Areas, or from Users providing services through the Irvine Networks
to any Person in the Spectrum or any Additional Areas: (a) fees for access
rights and other services sold by FirstWorld to such Customers, (b) ***, (c) ***
, (d) the lease or re-sale of lines or circuit paths within the Irvine Networks
to Users to access customers of said Users, and (e) the lease to Customers of
Customer premises equipment which is not generally available and which is
required by FirstWorld as a condition of service.

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

*** CONFIDENTIAL TREATMENT REQUESTED

<PAGE>

"Hazardous Materials" means all materials, substances and wastes,
variously designated as hazardous or toxic substances, materials or wastes
pursuant to all federal, state, and local laws, statutes, ordinances, rules and
regulations relating to the environment, including without limitation, the
federal Comprehensive Environmental Response Compensation and Liability Act, the
Resource Conservation and Recovery Act, the Superfund Amendment and
Reathorization Act and the California Health and Safety Code, and shall also
include, PCB's, asbestos, radon and fractions of petroleum, whether or not so
designated therein.

"Imposition" means the sum of all of the following to the extent
imposed on the Leased Premises, the Conduit, the Cable, the Irvine Networks, any
Equipment installed in connection therewith, or the services to be provided by
FirstWorld to Customers and Users; (i) all real estate taxes and assessments or
personal property taxes and assessments, as such property taxes may be assessed
or reassessed from time to time ; (ii) any and all other taxes, charges and
assessments which are levied with respect to this Agreement or to any of the
foregoing, other than general net income and franchise taxes of Irvine; (iv)
all charges, fees, taxes, surcharges or assessments of any kind or nature which
are in the future levied by any Governmental Authority, in lieu of, in addition
to or as a replacement for any other Imposition; and (iv) costs and expenses
incurred in contesting the amount or validity of any Imposition by appropriate
proceedings.

"Initial Installation Date" shall have the meaning set forth in
Section 2.10.1 of the Conduit Lease.

"Irvine" means The Irvine Company, a Delaware corporation.

"Irvine Marks" shall have the meaning set forth in Section 19.1 of the
License Agreement.

"Irvine Networks" means the Spectrum Network and any Additional
Networks.

"Irvine's Cure" shall have the meaning set forth in Section 14.4 of
this Agreement.

"Irvine's Cure Rights" shall have the meaning set forth in Section
14.4 of this Agreement.

"Leased Premises" means the space within the tubes of the Conduit
together with the non-exclusive right to use undivided space within the pull
boxes serving such tubes.

"Lender" means any Person(s), including bondholder(s), and any
Affiliate of FirstWorld providing Financing for the ownership, design,
construction, improvement, maintenance, replacement or operation of one or more
Networks or any matter related thereto, including, without limitation, any
trustee or collateral agent appointed by any such Lender to represent its
interests.

"Lender's Cure" shall have the meaning set forth in Section 13.4 of
this Agreement.

"Lender's Cure Rights" shall have the meaning set forth in Section
13.4 of this Agreement.

<PAGE>

"License Agreement" means that certain Telecommunications System
License Agreement dated as of March 5, 1998, by and between Irvine and
FirstWorld.

"License Fee" shall have the meaning set forth in Section 6.1.1 of the
License Agreement.

"Market Adjustment Date" shall have the meaning set forth in Section
6.1.4 of the License Agreement.

"Marks" means the FirstWorld Marks and the Irvine Marks.

"Memorandum of Lease" means a recordable memorandum of the Conduit
Lease in the form of Appendix 7 attached to the Conduit Lease to be executed
between the parties.

"Networks" means one or more neutral broadband fiber optic
telecommunications pathways which are available to all competing
telecommunication service providers for a fee on a non-discriminatory basis and
are inter-operable with an incumbent local telephone carrier, but excluding any
transport links between pathways and the applicable switching facility.

"Off Net" means that FirstWorld is providing service to the end user
over a third party's transport system.

"On Net" means that FirstWorld's Cable is connected to the applicable
building, and FirstWorld is providing service to the end user over such Cable.

"Other Building Gross Revenue" means, for any period, all revenues
received by FirstWorld or any of its Affiliates, assignees, or sublessees with
respect to services provided during such period that are attributable to the
following derived from Customers occupying Additional Other Buildings or Users
providing services to Persons occupying Additional Other Buildings: (a) fees for
access rights and other services sold by FirstWorld to such Customers, (b) ***,
(c) *** , (d) the lease or re-sale of lines or circuit paths to Users to access
customers of said Users in such Additional Other Buildings, and (e) the lease to
Customers of Customer premises equipment which is not generally available and
which is required by FirstWorld as a condition of service.

"Party" means Irvine or FirstWorld as a party to this Agreement.

"Payment Date" means each May 15, August 15, November 15 and February
15, or the next succeeding Business Day if such date is not a Business Day.

"Permitted Assignee" shall have the meaning set forth in Section 13.1
of this Agreement.

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

*** CONFIDENTIAL TREATMENT REQUESTED

8
<PAGE>

"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, Governmental Authority or any agency or political
subdivision thereof or any other entity.

"Phasing Plan" means the plans showing the phasing for installation of
the Irvine Networks or portions thereof. The initial Phasing Plan for the
Network to be installed in the Existing Spectrum is attached to this Agreement
as Appendix 6. Additional Phasing Plans will be prepared for any Additional
Spectrum areas and for any Additional Areas, in accordance with the terms and
provisions of the Conduit Lease.

"Plans" shall have the meaning set forth in Section 8.1 of the License
Agreement.

"Pre-Authorized Confidential Information" means Confidential
Information which pursuant to this Agreement is identified as Pre-Authorized
Confidential Information, and which shall be Confidential Information but need
not be so designated.

"Rent" means the sum of the Basic Percentage Rent and the Bonus
Percentage Rent.

"Requesting Party" shall have the meaning set forth in Article 25 of
this Agreement.

"Service Provider Payments" means all sums collected by FirstWorld or
any of its Affiliates, assignees or sublessees, on behalf of any Users or other
service providers.

"Serviced Buildings" means all buildings and other facilities within
both the Spectrum and such Additional Areas as may be incorporated into this
Agreement.

"Spectrum" means the Existing Spectrum together with the Additional
Spectrum to the extent developed from time to time.

"Spectrum Network" means the Network to be installed by FirstWorld
within the Spectrum. If FirstWorld elects to service the Spectrum with more
than one Network in accordance with terms and provisions of this Agreement, then
all such Networks shall collectively be the Spectrum Network.

"Spectrum Service Area" means the Existing Spectrum together with the
Additional Spectrum to the extent developed and added to the Conduit Lease from
time to time.

"Term" shall mean the period commencing on the Commencement Date and
continuing until December 31, 2027.

"Third Party Building Access Payments" means payments for access to
buildings for which FirstWorld does not have a right of entry pursuant to the
License Agreement.

"Transfer" shall have the meaning set forth in Section 12.1 of this
Agreement.

"Unavoidable Delay" means any cause beyond the reasonable control of
the party affected, including, without limitation, the following:

9
<PAGE>

(a) Failures of or threats of failure of facilities, including
power failures and the failure of any component of a Network;

(b) Floods, earthquakes, tornadoes, storms, fires, lightning,
epidemics or other casualties;

(d) Labor disputes, labor or material shortages (including the
inability to obtain Equipment necessary to provide service) or acts of sabotage;

(e) Restraint by court order or Governmental Authority;

(f) Any failure to obtain the necessary permits, authorizations
or approvals from any Governmental Authority not caused by the failure of a
Party to take the actions required of it to obtain the same; or

(g) The need to condemn or acquire property prior to performing
any act.

"Underground Agencies" means one or more underground utility
monitoring companies.

"Users" means any Person who contracts with FirstWorld for access to a
Network in order to provide telecommunications services to its own customers (as
opposed to Customers who contract with FirstWorld for Network services as end
users).

<PAGE>

APPENDIX 2

DEPICTION OF EXISTING SPECTRUM

THIS APPENDIX CONTAINS A MAP OF THE EXISTING SPECTRUM

(AS DEFINED)

<PAGE>

APPENDIX 3

DEPICTION OF ADDITIONAL SPECTRUM

THIS APPENDIX CONTAINS A MAP OF THE ADDITIONAL SPECTRUM

(AS DEFINED)

<PAGE>

APPENDIX 4

EXISTING AVAILABLE SPECTRUM CONDUIT

THIS APPENDIX CONTAINS A SERIES OF MAPS OF THE AVAILABLE SPECTRUM CONDUIT

(AS DEFINED)

<PAGE>

APPENDIX 5

ADDITION MEMORANDUM

<PAGE>

ADDITON MEMORANDUM NO.
(CONDUIT LEASE)

THIS ADDITION MEMORANDUM is dated as of _____________,_____, and made by
and between THE IRVINE COMPANY, a Delaware corporation ("Irvine"), and
FIRSTWORLD ORANGE COAST, a California corporation ("FirstWorld").

A. Prior to the date hereof, Irvine and FirstWorld have entered into that
certain AGREEMENT FOR LEASE OF TELECOMMUNICATIONS CONDUIT dated as of
____________, 1998, (the "Conduit Lease") providing for, among other things, the
lease of space within certain Conduit to FirstWorld as more particularly set
forth in the Conduit Lease.

B. Irvine now desires to add to the Leased Premises under the Conduit
Lease, space within additional Available Conduit in accordance with the terms,
provisions and conditions of the Conduit Lease.

NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereto agree as
follows;

1. DEFINITIONS. Capitalized terms used in this Addition Memorandum and
not otherwise defined herein shall have the meaning given to them in the Conduit
Lease.

2. ADDITIONAL BUILDING. Pursuant to the provisions of Article 2 of the
Conduit Lease, effective as of ______________,_____, (the "Effective Date"),
space within the additional Available Conduit more particularly identified in
Exhibit A attached hereto and incorporated herein by this reference is added to
the Leased Premises. The Available Conduit as to which space is hereby added to
the Leased Premises services that portion of the [Additional Spectrum/Additional
Area of ___________] shown on Exhibit B. From and after the Effective Date, for
purposes of determining Rent due pursuant to Sections 4.1, 4.2 and 4.3 of the
Conduit Lease, Gross Revenues shall include Gross Revenues attributable to the
[Additional Spectrum\Additional Area] shown on Exhibit B.

3. FORCE AND EFFECT. Except for the addition to the Leased Premises set
forth in this Addition Memorandum, and the inclusion of the [Additional
Spectrum\Additional Area] shown

Appendix 5
Page 1 of 2
<PAGE>

in Exhibit B for purposes of determining Rent and calculating Gross Revenues,
the Conduit Lease shall remain unmodified and in full force and effect.

IN WITNESS WHEREOF, the Parties have executed this Addition Memorandum as
of the day and year first above written.

FIRSTWORLD ORANGE COAST,
a California corporation

By:
-------------------------------
Name:
----------------------------
Title:
---------------------------

THE IRVINE COMPANY,
a Delaware corporation

By:
-------------------------------
Name:
----------------------------
Title:
---------------------------

Appendix 5
Page 2 of 2

<PAGE>

APPENDIX 6

PHASING PLAN

THIS APPENDIX CONTAINS A COLOR CODED MAP OF THE AREA IN WHICH
THE COMPANY'S FACILITIES ARE TO BE CONSTRUCTED AND INDICATES
WHICH AREAS MUST BE COMPLETED AT VARIOUS TIMES

<PAGE>

APPENDIX 7

MEMORANDUM OF LEASE

<PAGE>

RECORDED REQUESTED BY AND
WHEN RECORDED MAIL TO:

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

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

MEMORANDUM OF CONDUIT LEASE

THIS MEMORANDUM OF AGREEMENT FOR LEASE OF TELECOMMUNICATIONS CONDUIT is
dated as of ______________, 1998, and made by and between THE IRVINE COMPANY, a
Delaware corporation ("Irvine"), and FIRSTWORLD ORANGE COAST, a California
corporation ("FirstWorld").

A. Prior to the date of this Memorandum, Irvine and FirstWorld have
entered into that certain AGREEMENT FOR LEASE OF TELECOMMUNICATIONS CONDUIT
dated as of ________________, 1998 (the "Conduit Lease").

B. Irvine and FirstWorld now desire to execute this Memorandum and to
cause the same to be recorded in the Official Records of Orange County,
California, to provide record notice of the rights, interests and obligations
set forth in the Conduit Lease.

NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereto agree as
follows:

1. LEASED PREMISES. Irvine has leased to FirstWorld space within
certain, but not all, tubes of the Existing Available Spectrum Conduit, together
with the non-exclusive right to undivided space within the pull boxes serving
the same, subject to, upon and in accordance with the terms, provisions and
conditions set forth in the Conduit Lease. The approximate location of the
Existing Available Spectrum Conduit is more particularly shown on Exhibit "A"
attached hereto and incorporated herein by the reference.

2. TERM. The Term of the Lease is for the period commencing upon the
date of the Conduit Lease, and expiring on December 31, 2027, with no
extensions.

Appendix 7
Page 1 of 3

<PAGE>

3. DEFINED TERMS. Initially capitalized terms used in this Memorandum
and not otherwise defined herein shall have the meanings given to them in the
Conduit Lease.

4. OTHER PROVISIONS. The purpose of this Memorandum is to provide record
notice of the rights, interests and obligations under the Conduit Lease, and all
of the terms, provisions and conditions of the Conduit Lease are incorporated in
this Memorandum as though the same were set forth herein in full. This
Memorandum shall in no way be construed to modify, amend, limit or expand, in
any manner whatsoever, the terms, provisions and conditions of the Conduit
Lease. In the event of any inconsistency between the terms, provisions and
conditions of this Memorandum and the terms, provisions and conditions of the
Conduit Lease, the terms, provisions and conditions of the Conduit Lease shall
prevail.

IN WITNESS WHEREOF, the Parties have executed this Memorandum as of the day
and year first above written.

FIRSTWORLD ORANGE COAST,
a California corporation

By:
---------------------------
Name:
-------------------------
Title:
------------------------

THE IRVINE COMPANY,
a Delaware corporation

By:
---------------------------
Name:
-------------------------
Title:
------------------------

Appendix 7
Page 2 of 3

<PAGE>

STATE OF____________ )
) ss.
COUNTY OF___________ )

On ______________, ____, before me, ____________________________, Notary
Public, personally appeared _____________________________ and __________________
personally known to me or proved to me on the basis of satisfactory evidence to
be the person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.

WITNESS my hand and official seal.

- -----------------------
Notary Public

STATE OF____________ )
) ss.
COUNTY OF___________ )

WITNESS my hand and official seal.

- -----------------------
Notary Public

Appendix 7
Page 3 of 3

<PAGE>

TELECOMMUNICATIONS SYSTEM LICENSE AGREEMENT

BY AND BETWEEN

THE IRVINE COMPANY

AND

FIRSTWORLD ORANGE COAST

DATE: MARCH 5, 1998

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
<S> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

2. GRANT OF LICENSE. . . . . . . . . . . . . . . . . . . . . . . . . . . .2

2. 1. Grant of License. . . . . . . . . . . . . . . . . . . . . . .2
2. 2. Use.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2. 3. Access. . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2. 4. Condition of Equipment Space and Building . . . . . . . . . .4
2. 5. Subordination . . . . . . . . . . . . . . . . . . . . . . . .4

3. TERM . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

4. CONNECTION OF BUILDINGS TO THE NETWORKS . . . . . . . . . . . . . . . .5

4. 1. Connection of Spectrum Network. . . . . . . . . . . . . . . .5
4. 2. Connection of Additional Networks . . . . . . . . . . . . . .5
4. 3. Time to Connect Buildings.. . . . . . . . . . . . . . . . . .5
4. 4. Manner of Connection. . . . . . . . . . . . . . . . . . . . .6
4. 5. Tenant Waivers. . . . . . . . . . . . . . . . . . . . . . . .6
4. 6. Multiple Networks; Switch Service.. . . . . . . . . . . . . .6

5. OPERATION OF THE NETWORKS . . . . . . . . . . . . . . . . . . . . . . .7

5. 1. Operations. . . . . . . . . . . . . . . . . . . . . . . . . .7
5. 2. Level of Service. . . . . . . . . . . . . . . . . . . . . . .8
5. 3. Reports to Irvine . . . . . . . . . . . . . . . . . . . . . .8
5. 4. Enforcement . . . . . . . . . . . . . . . . . . . . . . . . .9
5. 5. Right To Enter Into Operations and Maintenance Agreements.. .9
5. 6. Failure to Operate. . . . . . . . . . . . . . . . . . . . . .9

6. PAYMENTS TO IRVINE. . . . . . . . . . . . . . . . . . . . . . . . . . .9

6. 1. License Fee.. . . . . . . . . . . . . . . . . . . . . . . . .9
6. 2. Adjusted Gross Revenue. . . . . . . . . . . . . . . . . . . 11
6. 3. Gross Square Footage. . . . . . . . . . . . . . . . . . . . 11

7. IMPOSITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

7. 1. Impositions . . . . . . . . . . . . . . . . . . . . . . . . 11
7. 2. Assessments in Installments.. . . . . . . . . . . . . . . . 12
7. 3. Direct Payment by Irvine. . . . . . . . . . . . . . . . . . 12
7. 4. Right to Contest. . . . . . . . . . . . . . . . . . . . . . 12

8. CONSTRUCTION AND MAINTENANCE OF NETWORK . . . . . . . . . . . . . . . 12

8. 1. Construction. . . . . . . . . . . . . . . . . . . . . . . . 13
8. 2. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8. 3. Hazardous Materials.. . . . . . . . . . . . . . . . . . . . 14
8. 4. Maintenance of Equipment. . . . . . . . . . . . . . . . . . 14
8. 5. FirstWorld Equipment. . . . . . . . . . . . . . . . . . . . 14
8. 6. Interference. . . . . . . . . . . . . . . . . . . . . . . . 15
8. 7. Establishment of MPOE.. . . . . . . . . . . . . . . . . . . 15
8. 8. Damage; Condemnation. . . . . . . . . . . . . . . . . . . . 16

9. COVENANTS OF IRVINE . . . . . . . . . . . . . . . . . . . . . . . . . 17

9. 1. Right-of-Way. . . . . . . . . . . . . . . . . . . . . . . . 17

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9. 2. Periodic Notices. . . . . . . . . . . . . . . . . . . . . . 17
9. 3. Electric Utilities. . . . . . . . . . . . . . . . . . . . . 17

10. EQUIPMENT; SURRENDER OF LICENSE . . . . . . . . . . . . . . . . . . . 17

10. 1. Equipment and Removal . . . . . . . . . . . . . . . . . . . 18
10. 2. Option To Purchase. . . . . . . . . . . . . . . . . . . . . 18
10. 3. Rental of Equipment . . . . . . . . . . . . . . . . . . . . 18

11. FINANCING 19

11. 1. Financing Not Prohibited Transfer.. . . . . . . . . . . . . 19
11. 2. Cooperation with Lender Requirements. . . . . . . . . . . . 19
11. 3. Notice of Financing . . . . . . . . . . . . . . . . . . . . 20
11. 4. Notice of Default and Lender's Cure Rights. . . . . . . . . 20
11. 5. Obligations of Lender and Successors. . . . . . . . . . . . 22
11. 6. Lender Protections. . . . . . . . . . . . . . . . . . . . . 23
11. 7. Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . 23
11. 8. New Agreement . . . . . . . . . . . . . . . . . . . . . . . 23
11. 9. Concurrent Exercise.. . . . . . . . . . . . . . . . . . . . 24

12. IRVINE CURE RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . 24

12. 1. Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . 24
12. 2. Notice of Default . . . . . . . . . . . . . . . . . . . . . 24
12. 3. Priority of Cure Rights . . . . . . . . . . . . . . . . . . 24
12. 4. Irvine's Cure Rights. . . . . . . . . . . . . . . . . . . . 25
12. 5. Purchase of Financing Encumbrance; Subrogation. . . . . . . 26
12. 6. Right to Bid at Foreclosure Sale. . . . . . . . . . . . . . 27

13. DEFAULTS; REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . 27

13. 1. Events of Default . . . . . . . . . . . . . . . . . . . . . 27
13. 2. Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
13. 3. Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . 28
13. 4. Late Payments . . . . . . . . . . . . . . . . . . . . . . . 29
13. 5. Right to Perform. . . . . . . . . . . . . . . . . . . . . . 30
13. 6. Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . . 30
13. 7. Limitation. . . . . . . . . . . . . . . . . . . . . . . . . 30
13. 8. Damages Limitation. . . . . . . . . . . . . . . . . . . . . 30

14. SALE OF NETWORKS. . . . . . . . . . . . . . . . . . . . . . . . . . . 31

14. 1. FirstWorld's Right to Assign. . . . . . . . . . . . . . . . 31
14. 2. Submittal for Consent . . . . . . . . . . . . . . . . . . . 31
14. 3. Effect of Transfer. . . . . . . . . . . . . . . . . . . . . 31
14. 4. Right of First Refusal. . . . . . . . . . . . . . . . . . . 32
14. 5. Permitted Transfers.. . . . . . . . . . . . . . . . . . . . 32
14. 6. Multiple Networks.. . . . . . . . . . . . . . . . . . . . . 32

15. TRANSFER OF BUILDINGS . . . . . . . . . . . . . . . . . . . . . . . . 33

15. 1. Transfer of Single Building . . . . . . . . . . . . . . . . 33
15. 2. Transfer of Portfolio.. . . . . . . . . . . . . . . . . . . 33

16. INSURANCE; INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . 33

16. 1. FirstWorld Indemnity. . . . . . . . . . . . . . . . . . . . 33
16. 2. Exemption of Irvine from Liability. . . . . . . . . . . . . 34
16. 3. Irvine Indemnity. . . . . . . . . . . . . . . . . . . . . . 34
16. 4. FirstWorld Insurance. . . . . . . . . . . . . . . . . . . . 35
16. 5. Form of Policies. . . . . . . . . . . . . . . . . . . . . . 36

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16. 6. Increase in Liability Limits. . . . . . . . . . . . . . . . 37
16. 7. Release and Waiver of Subrogation . . . . . . . . . . . . . 37

17. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . 37

17. 1. Representations and Warranties of FirstWorld. . . . . . . . 37
17. 2. Representations and Warranties of Irvine. . . . . . . . . . 38

18. PROTECTION OF CONFIDENTIAL INFORMATION. . . . . . . . . . . . . . . . 38

18. 1. Designation of Confidential Information . . . . . . . . . . 38
18. 2. Obligations of Confidentiality. . . . . . . . . . . . . . . 38

19. MARKS AND PUBLICITY . . . . . . . . . . . . . . . . . . . . . . . . . 39

19. 1. Exclusive Ownership of Marks. . . . . . . . . . . . . . . . 39
19. 2. References to Marks.. . . . . . . . . . . . . . . . . . . . 40
19. 3. Effect of Termination.. . . . . . . . . . . . . . . . . . . 40
19. 4. Publicity . . . . . . . . . . . . . . . . . . . . . . . . . 40

20. ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

21. NO BROKER . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .41

22. WAIVERS. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

23. UCC FILING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

24. ESTOPPEL CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . 41

25. MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . 42

25. 1. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 42
25. 2. Further Assurances. . . . . . . . . . . . . . . . . . . . . 43
25. 3. Performance Under Protest . . . . . . . . . . . . . . . . . 43
25. 4. No Third Party Beneficiaries. . . . . . . . . . . . . . . . 43
25. 5. Interpretation. . . . . . . . . . . . . . . . . . . . . . . 43
25. 6. Delivery of Drafts. . . . . . . . . . . . . . . . . . . . . 43
25. 7. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . 43
25. 8. Cumulative Remedies . . . . . . . . . . . . . . . . . . . . 44
25. 9. Entire Agreement. . . . . . . . . . . . . . . . . . . . . . 44
25. 10. Amendments. . . . . . . . . . . . . . . . . . . . . . . . . 44
25. 11. Partial Invalidity. . . . . . . . . . . . . . . . . . . . . 44
25. 12. Successors. . . . . . . . . . . . . . . . . . . . . . . . . 44
25. 13. Governing Law . . . . . . . . . . . . . . . . . . . . . . . 44
25. 14. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . 44
25. 15. Time Periods. . . . . . . . . . . . . . . . . . . . . . . . 44
25. 16. Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . 44
25. 17. Negation of Partnership . . . . . . . . . . . . . . . . . . 45
25. 18. Attorneys' Fees.. . . . . . . . . . . . . . . . . . . . . . 45
25. 19. Relationships . . . . . . . . . . . . . . . . . . . . . . . 45
25. 20. Nondedication of Facilities.. . . . . . . . . . . . . . . . 45
25. 21. Force Majeure. .. . . . . . . . . . . . . . . . . . . . . . 45

</TABLE>

TABLE OF APPENDICES

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<PAGE>

APPENDIX 1 - GLOSSARY OF DEFINED TERMS
APPENDIX 2 - DEPICTION OF EXISTING SPECTRUM
APPENDIX 3 - ADDITIONAL SPECTRUM
APPENDIX 4 - EXISTING SPECTRUM BUILDINGS
APPENDIX 5 - ADDITION MEMORANDUM
APPENDIX 6 - PHASING PLAN
APPENDIX 7 - WAIVER AND RELEASE

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<PAGE>

TELECOMMUNICATIONS SYSTEM LICENSE AGREEMENT

THIS TELECOMMUNICATIONS SYSTEM LICENSE AGREEMENT (this "Agreement") is
dated as of March 5, 1998, and made by and between THE IRVINE COMPANY, a
Delaware corporation ("Irvine") and FIRSTWORLD ORANGE COAST, a California
corporation ("FirstWorld").

RECITALS

A. FirstWorld is a wholly owned subsidiary of FWC. FWC is engaged
in the business of providing telecommunications network facilities and services
to municipalities and other users, both directly and through subsidiaries such
as FirstWorld.

B. FirstWorld proposes to build, own and operate Networks within the
State of California. Pursuant to the Conduit Lease, FirstWorld intends to
install the Spectrum Network to service Buildings in the Spectrum Service Area.

C. The Spectrum Service Area currently consists of the Existing
Spectrum, which is currently improved with commercial, industrial and retail
buildings including the Existing Spectrum Buildings, and the Additional
Spectrum, which Irvine anticipates it will improve with additional commercial,
industrial and retail buildings and which will include the Additional Spectrum
Buildings. Irvine is the master developer of the Spectrum Service Area. Irvine
also contemplates development of the Additional Areas which will be owned or
otherwise controlled by it.

D. Irvine desires to give FirstWorld the right to connect the
Spectrum Network to Additional Spectrum Buildings and may give FirstWorld the
right to connect the Irvine Networks to Additional Area Buildings or its other
Networks to Additional Other Buildings, to enable FirstWorld to provide
telecommunications services to occupants of such buildings, all in exchange for
the payments set forth in this Agreement. FirstWorld desires to obtain the
right to provide such services in the Existing Buildings and in the Additional
Buildings from time to time added to this Agreement in accordance with the terms
hereof.

E. On June 11, 1997, the PUC issued to FirstWorld a Certificate of
Public Convenience and Necessity with respect to, among other things, the
construction and operation of the Networks.

F. FirstWorld will develop, own, maintain and operate the Irvine
Networks. Pursuant to the terms of this Agreement, Irvine will have certain
rights and responsibilities, and will be entitled to receive certain payments,
in connection with access to the Existing Buildings and access to Additional
Buildings which may be added to this Agreement.

G. FirstWorld and Irvine have also entered into the Conduit Lease
concurrently with this Agreement pursuant to which, among other things, Irvine
has leased to FirstWorld space within the Existing Available Spectrum Conduit
(as described in the Conduit Lease).

<PAGE>

AGREEMENT

DEFINITIONS

Capitalized terms used herein as defined terms shall have the meanings
given to them in the Glossary of Defined Terms attached hereto as Appendix 1
(such definitions to be equally applicable to both the singular and plural forms
of the terms defined) or elsewhere in this Agreement.

GRANT OF LICENSE

2.1. GRANT OF LICENSE.

2. 1. 1. Irvine hereby grants to FirstWorld, for the Term of
this Agreement, the right and license (the "License") to construct, install,
maintain, operate, use, repair, replace, augment and remove, at FirstWorld's
sole expense and risk, Cable and associated Equipment in the Existing Spectrum
Buildings as set forth herein.

2. 1. 2. Irvine further grants to FirstWorld the License to
construct, install, maintain, operate, use, repair, replace, augment and remove,
at FirstWorld's sole expense and risk, Cable and associated Equipment in any
Additional Spectrum Building in the Spectrum Service Area at any time during the
Term of this Agreement. Once any construction has been substantially completed
by Irvine on any building in the Spectrum Service Area, such building shall be
deemed a "Building" for purposes of this Agreement, and the License shall apply
thereto.

2. 1. 3. Irvine may add any Additional Area Building in any
Additional Areas to this Agreement effective not earlier than the substantial
completion of such Additional Area Building either (i) by notice to FirstWorld,
or (ii) by the substantial completion of an Additional Area Building in an
Additional Area as to which space within Available Other Conduit has been added
to the Leased Premises pursuant to the terms of the Conduit Lease. To the
extent Irvine adds an Additional Area Building to this Agreement, Irvine further
grants to FirstWorld the License to install, maintain, operate, use, repair,
replace, augment and remove, at FirstWorld's sole expense risk, Cable and
associated Equipment in such Additional Area Building. Once any Additional Area
Building is so added to this Agreement by Irvine, such building shall be deemed
a "Building" for purposes of this Agreement, and the License shall apply
thereto.

2. 1. 4. Irvine may add any Additional Other Building owned
by it and located in the State of California (other than buildings in the
Spectrum Service Area and the Additional Areas) to this Agreement by written
notice to FirstWorld. To the extent Irvine adds an Additional Other Building to
this Agreement, Irvine further grants to FirstWorld the License to

2
<PAGE>

construct, install, maintain, operate, use, repair, replace, augment and remove,
at FirstWorld's sole expense and risk, Cable and associated Equipment in such
Additional Other Building. Once any Additional Other Building has been added to
this Agreement by Irvine, such building shall be deemed a "Building" for
purposes of this Agreement, and the License shall apply thereto.

2. 1. 5. As to those Buildings which are owned by Irvine and
which are not leased as a single building in its entirety to a single tenant,
Irvine shall provide Equipment Space to FirstWorld to the extent available in
any Building and FirstWorld shall, at FirstWorld's cost, keep each such
Equipment Space in good condition and repair and shall ensure that each such
Equipment Space provides a secure, water tight and otherwise adequate
environment for operation of the Equipment. FirstWorld shall have access to
each such Equipment Space during each Building's normal hours of operation but
shall, in addition, have access to each such Equipment Space twenty-four (24)
hours a day to perform emergency maintenance and repairs. The Equipment Space
and the Equipment in each Building within the Spectrum Service Area or any
Additional Area will be used by FirstWorld as a service site for the Spectrum
and/or any Additional Area and only for that purpose. In connection therewith,
FirstWorld shall have the right to permit occupants of the Building to locate
telecommunications equipment in the Equipment Space, provided that all risk of
loss and/or damage to such equipment shall be borne solely by such occupants
and/or FirstWorld, and FirstWorld shall defend and indemnify Irvine therefrom
pursuant to Section 16.1 of this Agreement. Irvine may, from time to time as
needed, have access to the Equipment Space, and FirstWorld agrees to cooperate
in providing such access. FirstWorld acknowledges that the Equipment Space in
most Buildings will be located in equipment rooms to which other Persons have
access, including other telecommunications providers, that Irvine will not
undertake any responsibility for protecting any Cable or Equipment installed by
FirstWorld in any Equipment Space, and that FirstWorld will be solely
responsible for taking such actions as may be reasonably necessary or
appropriate for protecting the same.

2. 1. 6. As to those Buildings which are owned by Irvine and
which are not leased as a single building in its entirety to a single tenant,
Irvine shall permit use of existing Building entrance conduit systems and
existing Building wiring to the extent that Irvine has the possession of and
authority to allow such use of said facilities. In addition, the License shall
include the right of FirstWorld to construct, install, maintain, operate,
repair, replace, augment and utilize building entrance conduit systems as
described in Section 8.1.2.

2. 1. 7. As to Buildings which are owned by Irvine and as to
which FirstWorld has been or is granted a License hereunder, and which are
leased as a single building in its entirety to a single tenant, FirstWorld will
likely need to obtain access to and the right to use the Equipment Space, any
existing Building entrance conduit systems and existing Building wiring from the
tenant of such Building for the term of such lease. FirstWorld anticipates that
any rights of access or consents which it requires from any tenant with regard
to any such Building can be obtained as part of any service agreement entered
into between FirstWorld and such tenant for service to the Building. Irvine
shall cooperate with FirstWorld and such tenant to permit FirstWorld to provide
service to such Buildings. Irvine hereby grants any consents reasonably
required by a tenant of any such Building, to permit FirstWorld to provide
service to such tenant, and will provide notice confirming such consent to any
such tenant upon request.

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<PAGE>

2. 1. 8. The License granted for any Building shall not be
exclusive. Irvine hereby reserves the right to grant, renew or extend similar
licenses to others, including other fiber optic or non-fiber optic
telecommunications service providers, which other licenses may include rights to
utilize space in the equipment room in which the Equipment Space is located to
the extent that such use does not materially interfere with the Equipment Space
to be provided to FirstWorld pursuant to this Agreement.

2. 1. 9. Notwithstanding the foregoing grants to FirstWorld
and FirstWorld's rights and options contained in this Agreement, except as
expressly provided in Sections 8.1.2, and 4.3, FirstWorld shall have no
obligation to construct or install any Equipment or any building entrance
conduit system in or to any Building.

2. 2. USE. FirstWorld may use the Equipment Space and Equipment
only for the purpose of providing a Building's occupants with fiber optic
telecommunications services which FirstWorld: (a) has been, or may in the
future be, certified to provide by either the local public utility governing
body, the PUC, the Federal Communications Commission, or any other Governmental
Authority with jurisdiction as to the provision of such services; or (b) is now,
or may in the future be, permitted to provide without any such certification.

2. 3. ACCESS. Subject to the rights of Irvine's Tenants, Irvine
shall provide FirstWorld's authorized employees, representatives and contractors
access to each Building, so that FirstWorld may construct, install, maintain,
operate, use, repair, replace, augment and/or remove FirstWorld Equipment from
time to time. Except in emergency situations, such access shall be during
normal business hours and with prior notice to Irvine. Any access shall be
subject to such reasonable requirements and procedures as may be established
from time to time by Irvine. FirstWorld shall be responsible for any damage or
injury resulting from such entry and shall indemnify Irvine therefrom in
accordance with the provisions of this Agreement. FirstWorld acknowledges that
Irvine's right to provide such access may be limited in Buildings which are
wholly leased to a single tenant.

2. 4. CONDITION OF EQUIPMENT SPACE AND BUILDING. Irvine makes no
warranty or representation that the Equipment Space in any Building is suitable
for the use contemplated herein, it being assumed that FirstWorld has satisfied
or will satisfy itself thereof; provided, however, that the foregoing shall not
limit Irvine's obligation to the extent required under Section 2.1.5 hereof to
make Equipment Space available to FirstWorld to enable FirstWorld to install and
operate Equipment for the purposes contemplated by this Agreement. FirstWorld
agrees to accept, and shall have inspected, the Equipment Space in the Buildings
"as is" and agrees that Irvine is under no obligation to perform any work or
provide any materials to prepare the Equipment Space or any Building for
FirstWorld.

2. 5. SUBORDINATION. FirstWorld accepts the License granted
hereunder subject and subordinate to any mortgage, deed of trust or other lien
presently existing upon any Building, but FirstWorld agrees that the holder or
beneficiary of any such mortgage, deed of trust or lien shall have the right at
any time to subordinate such mortgage, deed of trust or other lien to the
License on such terms and subject to such conditions as such holder or
beneficiary may deem appropriate in its discretion. This provision is hereby
declared to be self-operative and no further instrument shall be required to
effect such subordination of this Agreement, provided that

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FirstWorld shall upon request execute an instrument submitted by Irvine
confirming the same. FirstWorld agrees to subordinate this Agreement to any
mortgage, deed of trust or other lien created after the effective date of this
Agreement affecting any Building so long as in connection with such
subordination the holder of such mortgage, deed of trust or other lien agrees in
writing that in the event of the foreclosure thereof this Agreement shall not be
terminated as to any Building then subject to this Agreement, and encumbered by
such mortgage, deed of trust or other lien and the holder thereof shall
recognize the rights of FirstWorld created by this Agreement as to the real
property encumbered by such mortgage, deed of trust or other lien, which
recognition agreement shall be in a form reasonably acceptable to FirstWorld and
such holder, provided, however, that such lender have the same rights to
terminate this Agreement in connection with any sale of a Building as are
reserved by Irvine in Section 15.1 of this Agreement. No provision of this
Section 2.5 shall be construed to give any such holder or beneficiary any claim,
right or title to any Equipment.

TERM

The term of this Agreement shall commence on the date of this
Agreement (the "Commencement Date") and shall expire on December 31, 2027,
unless terminated sooner as provided herein.

CONNECTION OF BUILDINGS TO THE NETWORKS

4. 1. CONNECTION OF SPECTRUM NETWORK. FirstWorld shall construct
the Spectrum Network and any expansion thereof into Additional Spectrum areas by
FirstWorld's installation of Cable in the Conduit in accordance with the Conduit
Lease, and shall connect the Existing Spectrum Buildings and any Additional
Spectrum Buildings to the Spectrum Network over time based on factors such as
(a) the rate at which Customers subscribe for Network services, (b) the location
of such Customers relative to the orderly and logical extension of Spectrum
Network facilities, and (c) the number of customers requiring "on-Net" and
"off-Net" service, all as reasonably determined by FirstWorld.

4. 2. CONNECTION OF ADDITIONAL NETWORKS. To the extent that
Irvine adds space within Available Other Conduit to the Leased Premises pursuant
to the Conduit Lease, FirstWorld shall construct a Network for the portion of
the Additional Area serviced by such Available Other Conduit in accordance with
the Conduit Lease and shall connect Additional Area Buildings in such Additional
Area over time based on the factors set forth in Section 4.1, above.

4. 3. TIME TO CONNECT BUILDINGS. Within *** (***) days after a
Customer that is a tenant of an office or other non-retail commercial Building
has subscribed in writing with FirstWorld for Network services as an end user,
FirstWorld shall submit to Irvine

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

*** CONFIDENTIAL TREATMENT REQUESTED

5
<PAGE>

Plans for the construction work necessary to provide telecommunications network
service to such customer, which Plans shall be approved or disapproved by Irvine
in accordance with Section 8.1.1 below. Within *** (***) days after Irvine's
approval of such Plans, FirstWorld shall install such Cable and Equipment in,
and any necessary building entrance conduit system to, such Building as is
necessary to provide telecommunications network service to such Customer;
provided, however, that FirstWorld shall only be required to install such Cable
and Equipment and commence such service if there shall already exist, at the
time such Customer subscribes with FirstWorld, Conduit (as defined in the
Conduit Lease) either owned or leased by FirstWorld within one thousand (1,000)
feet of such Building that is, in FirstWorld's reasonable judgment, sufficient
to provide such service. FirstWorld shall also not be obligated to provide
service to a Customer if the equipment room in the Building in which such
Customer is located lacks adequate space for FirstWorld's installation of the
Equipment necessary to provide service to such Customer. To the extent that
FirstWorld reasonably anticipates that the tenants of a Building will incur an
average billing of $ *** per month for FirstWorld's services, FirstWorld will
provide on-net service to such Building within the time periods and subject to
the conditions specified in this Section. Notwithstanding any contrary
provision of this Section 4.3, if FirstWorld is required to condemn an access
route for connecting any Building in which a tenant which has requested service
is located, then the time within which FirstWorld is obligated to provide
service to such tenant shall be extended by the period of time necessary to
obtain possession of the requisite access route by condemnation.

4. 4. MANNER OF CONNECTION. When FirstWorld installs Cable in any
building entrance conduit system and into a Building for connection to the MPOE,
FirstWorld shall provide adequate Cable so that upon termination of service to
any Building and removal of FirstWorld's Equipment, there will be a length of
Cable extending from the point of penetration of the Cable into the Building to
the point of connection to the MDF plus an additional approximately twenty (20)
feet of Cable coiled at such point of connection.

4. 5. TENANT WAIVERS. FirstWorld shall not provide
telecommunications services to any tenant of a Building unless and until a
Waiver and Release, substantially in the form attached as Appendix 7 hereto, has
been duly executed by such tenant and delivered by FirstWorld to Irvine,
provided, however, that FirstWorld may satisfy the requirements of this Section
4.5 by including language similar to that contained in Appendix 7 in its
standard service agreement for the benefit of Irvine.

4. 6. MULTIPLE NETWORKS; SWITCH SERVICE.

4. 6. 1. FirstWorld shall have the right to provide service
to the Spectrum Service Area through a single Network or through multiple
Networks, and may provide service to any Additional Area as to which space in
Available Other Conduit has been added to the Conduit Lease from the Spectrum
Network or from an Additional Network. FirstWorld may provide service to any
areas not covered by this Agreement utilizing the Spectrum Network or any
Additional Network, so long as: (a) there is at all times adequate capacity in
the Spectrum

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Network or such Additional Network to provide service to Customers in the
Spectrum and the Additional Areas as to which space in Available Other Conduit
has then been added to the Leased Premises under the Conduit Lease; (b) the
provision of service to such areas not covered by this Agreement (as to any
single area or in the aggregate) does not materially and adversely impact the
speed or quality of service provided to the Spectrum or such portions of the
Additional Areas; and (c) there will be at all times an alternative fiber optic
route to provide service to any such areas not covered by this Agreement without
use of the Spectrum Network or any Additional Network.

4. 6. 2. FirstWorld contemplates providing service to the
Spectrum Network from one of its Affiliate's switching facility in Anaheim or
any other switching facility which FirstWorld or any of its Affiliates may
hereafter control. Such facility is expected to be utilized in providing
service to multiple Networks, including Networks other than the Irvine Networks.
FWC may transfer such facility into a separate Affiliate after the date hereof,
and will enter into a separate agreement or agreements between such Affiliate
and FirstWorld with regard to the provision of service to the Irvine Networks
from such switching facility. No provision of this Agreement shall be construed
as causing such switching facility to be a part of the Spectrum Network or any
Additional Network, or requiring the transfer of such switching facility to a
separate Affiliate. In the event that Irvine succeeds to rights of FirstWorld
pursuant to the terms of this Agreement, including without limitation by
exercising any of its cure rights under Article 12 or its right of first refusal
under Section 14.4, Irvine shall have the option as to whether to assume any
agreement regarding the provision of service from such switching facility or to
terminate such agreement as to the Irvine Networks, and any such agreement
regarding any such switching facility shall acknowledge and affirm the rights of
Irvine under this Agreement as to agreements regarding switching facilities.

OPERATION OF THE NETWORKS

5. 1. OPERATIONS. FirstWorld shall be the owner and operator of
the Irvine Networks and shall have the responsibility for and authority to make
decisions regarding all aspects of the operations of the Irvine Networks,
including, without limitation, the following matters:

5. 1. 1. Operating, maintaining and repairing all Network
facilities in accordance with prudent industry practice.

5. 1. 2. Making capital improvements and enhancements to the
Irvine Networks in accordance with prudent industry practice in order to
reasonably respond to technological improvements and Customer or User
requirements.

5. 1. 3. Using commercially reasonable diligence to obtain
Customers and Users for Network services.

5. 1. 4. Developing and implementing billing and collection
systems to support the operation of the Irvine Networks.

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5. 1. 5. Performing all accounting functions associated with
the development and operation of the Irvine Networks and preparing and
maintaining (or causing to be prepared and maintained) detailed operating and
financial records for the Irvine Networks. Irvine shall have the right to
inspect such records at FirstWorld's offices in Orange County during reasonable
business hours upon ten (10) days' notice to FirstWorld, at Irvine's expense
(except to the extent Irvine is entitled to recover the cost of any audit of
Rent due under the Conduit Lease pursuant to the terms of the Conduit Lease).

5. 1. 6. Keeping (or causing to be kept) such other accounts,
books and records as may be necessary for proper financial management and
reporting by FirstWorld.

5. 1. 7. Obtaining all permits that may be required in
connection with the development, ownership and operation of the Irvine Networks.

5. 1. 8. Procuring and maintaining insurance as required
pursuant to Article 16.

5. 1. 9. Hiring, training, supervising and terminating all
employees, independent contractors and consultants necessary to develop,
maintain and operate the Irvine Networks.

5. 1. 10. Determining, in accordance with Applicable Law, the
manner and extent of carrier interconnection with the Irvine Networks and
negotiating with carriers regarding the terms upon which they may interconnect
with and operate on the Irvine Networks.

5. 1. 11. Taking such other actions as FirstWorld may deem
reasonably necessary or appropriate in connection with the Irvine Networks.

5. 2. LEVEL OF SERVICE. To the extent that FirstWorld provides
fiber optic service to any Building, FirstWorld shall provide reliable
telecommunications industry standard services to Irvine (if Irvine is a Customer
or User) and/or tenants of such Building as defined by a *** with respect to
network performance uptime; provided, however, that FirstWorld shall not be
liable or responsible for any acts or omissions of Irvine or any other tenant or
occupant of any Building, or for any Unavoidable Delay, including the
consequences of any fire or other peril, civil unrest, unavailability of labor
or materials, or other events or circumstances beyond the reasonable control of
FirstWorld.

5. 3. REPORTS TO IRVINE. Within forty-five (45) days following
the end of each calendar quarter, FirstWorld shall provide to Irvine a quarterly
written report summarizing the operations of the Irvine Networks for the
preceding calendar quarter and projecting the operations of the Irvine Networks
for the following calendar quarter. Such reports shall include information
concerning the amount of payments anticipated to be made to Irvine pursuant to
Article 6 of this Agreement during the following calendar quarter and, in the
case of each report

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first submitted after the end of a calendar year, an annual audit of FirstWorld
and the operations of the Irvine Networks for the preceding calendar year
prepared by an independent certified public accounting firm. Such reports shall
also specify the cost of each building entrance conduit system installed by
FirstWorld during the relevant calendar quarter in compliance with the
provisions of Section 8.1.2, below.

5. 4. ENFORCEMENT. FirstWorld reserves the right to enforce the
obligations of its Customers and Users to FirstWorld, which enforcement may
include, without limitation, the termination of service to any Customer or User
which does not timely pay sums due FirstWorld.

5. 5. RIGHT TO ENTER INTO OPERATIONS AND MAINTENANCE AGREEMENTS.
FirstWorld shall be entitled to enter into agreements with other Persons,
whether affiliated or nonaffiliated, under which such other Persons may
undertake operational or maintenance duties associated with FirstWorld's rights
and/or obligations hereunder, including, without limitation, (a) sales, (b)
Conduit, Cable and/or Equipment installation, maintenance and repair, and (c)
other similar duties. Neither said agreements nor any performance thereunder
shall constitute a Transfer within the meaning of Section 14.1 hereof.

5. 6. FAILURE TO OPERATE. In the event that FirstWorld fails to
operate the Irvine Networks or otherwise provide fiber optic telecommunications
service on the Irvine Networks for a consecutive period of five (5) days or more
then, in addition to any other rights or remedies of Irvine hereunder and
subject to the rights and remedies of any Lender under Articles 11 and 12,
Irvine may until such failure is cured by FirstWorld (but shall not be obligated
to) either remedy such failure directly or cause another fiber optic service
provider to provide service, as an agent or contractor of Irvine, utilizing the
Irvine Networks. In either such case, FirstWorld shall upon Irvine's demand
bear all expenses for, or reimburse Irvine for, all costs incurred in connection
with, Irvine's exercise of its rights under this Section 5.6. If Irvine elects
to exercise its rights under this Section 5.6, Irvine shall also have the right
during any period in which it is exercising such remedy to utilize or to permit
another fiber optic service provider as an agent or contractor of Irvine to
utilize FirstWorld's Equipment.

PAYMENTS TO IRVINE

6. 1. LICENSE FEE.

6. 1. 1. FirstWorld shall pay to Irvine during the Term of
this Agreement a quarterly fee (the "License Fee"), which shall be paid in
advance on the first day of each calendar quarter at the address set forth in
Section 25.1, below, or at such other address as Irvine may designate in writing
from time to time, without prior demand and without offset or deduction. The
License Fee payable for any calendar quarter at the beginning or end of the Term
shall be prorated based on the actual number of days of the Term in such
calendar quarter.

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6. 1. 2. The License Fee shall equal the sum of ***
Dollars ($ *** ), subject to adjustment in accordance with the provisions of
this Section 6.1. In the event an Additional Building is added to this
Agreement pursuant to the provisions hereof, the License Fee shall be
adjusted effective upon the date such Additional Building is added to this
Agreement by increasing the License Fee by a sum equal to the Additional
License Fee Base times the gross square footage of such Additional Building.
In the event that any Building is removed from this Agreement in accordance
with the provisions hereof after the date of this Agreement, or this
Agreement is otherwise terminated as to any Building in accordance with the
terms hereof, the License Fee shall be decreased effective upon the date such
Building is removed from this Agreement or so terminated by a sum equal to
the Additional License Fee Base times the gross square footage of the
Building removed or so terminated. The Additional License Fee Base for each
calendar quarter during the calendar year in which the Commencement Date
occurs shall be *** cents ($ *** ) per gross square foot per calendar quarter.

6. 1. 3. On January 1 of each calendar year during the Term
following the calendar year in which the Commencement Date occurs (each an
"Adjustment Date"), the License Fee and the Additional License Fee Base shall be
increased, but not decreased, to an amount equal to the product obtained by
multiplying the then-current License Fee (as it may previously have been
adjusted pursuant to Section 6.1.2, above, or Section 6.1.4, below) and the
Additional License Fee Base, respectively, by a fraction, the numerator of which
shall be the CPI published three months preceding the applicable Adjustment Date
and the denominator of which shall be the CPI published three months preceding
the prior Adjustment Date, or, in the case of the first Adjustment Date, the
Commencement Date; provided, however, that in no event shall such fraction be
greater than 1.06 or less than 1.02. In no event shall the License Fee be
decreased as a result of the decrease in the CPI in any calendar year. No
provision of this Section 6.1.3 shall be construed to prohibit any decrease in
the License Fee which would result from a removal of a Building from this
Agreement pursuant to Section 6.1.2, above.

6. 1. 4. Notwithstanding any contrary provision of Section
6.1.3, above, on January 1, 2008 and January 1, 2018 (each a "Market Adjustment
Date") the License Fee for all Buildings then subject to this Agreement shall be
increased, but not decreased, to the greater of the amount determined pursuant
to Section 6.1.3, above, or the Fair Market License Fee determined in accordance
with this Section 6.1.4. The Fair Market License Fee shall equal the fair
market license fee then customarily being charged by owners of office and
industrial buildings in Los Angeles, Orange and San Diego Counties, California,
per building or per square foot, whichever is then customary (as a fee to
telecommunications service providers to permit such providers access to and
space for telecommunications facilities and conduit within an owner's building
to allow such providers to provide telecommunications service to one or more
tenants of such building) times the number, or gross square footage, of the
Buildings then subject to this Agreement, as applicable, provided, however, that
in no event shall the License Fee be

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increased on any Market Adjustment Date to an amount equal to more than 200% of
the License Fee in effect for the immediately preceding calendar year. On or
before one-hundred eighty (180) days prior to either Market Adjustment Date,
Irvine shall notify FirstWorld of Irvine's determination of the Fair Market
License Fee and the adjusted License Fee pursuant to this Section 6.1.4. Within
thirty (30) days after such notice, FirstWorld shall either notify Irvine that
FirstWorld agrees with Irvine's determination or that it disagrees. Any failure
of FirstWorld to notify Irvine within such thirty (30) day period that
FirstWorld agrees or disagrees with Irvine's determination shall be deemed an
approval of Irvine's determination of the Fair Market License Fee and the
adjusted License Fee. Any notice from FirstWorld that it disagrees with
Irvine's determination shall specify FirstWorld's opinion of the Fair Market
License Fee and the adjusted License Fee under this Agreement. If FirstWorld
disagrees with Irvine's determination, the Parties shall for a period of thirty
(30) days following FirstWorld's notice of disagreement endeavor to reach
agreement on the adjusted License Fee due under this Section 6.1.4. If the
Parties are unable to so reach agreement, then the Fair Market License Fee shall
be determined by binding arbitration in accordance with Article 20 of this
Agreement.

6. 1. 5. The gross square footage of any Building or
Additional Building shall be calculated by Irvine in accordance with its
standard practices for calculating gross square footage of office and industrial
buildings, and shall be identified by Irvine at the time any Building or
Additional Building is added to or removed from this Agreement. Such gross
square footage shall be used for all purposes under this Agreement unless
FirstWorld requests a recalculation of the same as to any Building or Additional
Building added to or removed from this Agreement within sixty (60) days after
the date of the addition or removal of such Building or Additional Building. If
the Parties are unable to reach agreement upon the gross square footage of any
Building or Additional Building within thirty (30) days after FirstWorld
requests a recalculation of gross square footage as to any Building, then the
gross square footage in dispute shall be determined by binding arbitration in
accordance with Article 20, below, and the gross square footage specified by
Irvine shall be utilized for the calculation of the License Fee until resolution
of such arbitration.

6. 2. ADJUSTED GROSS REVENUE. In addition to the License Fee
payable hereunder, FirstWorld shall, as additional rental, pay Bonus Percentage
Rental on account of any Additional Other Building which is added to this
Agreement, as provided in the Conduit Lease. Such Bonus Percentage Rental shall
be paid by adding the Other Building Gross Revenue earned by from any Additional
Other Building into the Adjusted Gross Combined Revenue under the Conduit Lease
as provided in the Conduit Lease.

6. 3. GROSS SQUARE FOOTAGE. As used in this Agreement, the "gross
square footage" of any Building shall exclude the square footage of any vertical
penetrations in such Building.

IMPOSITIONS

7. 1. IMPOSITIONS. For any period within the Term of this Agreement
(with daily proration for periods partially within the Term and partially
outside the Term), FirstWorld

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shall pay and discharge all Impositions related to the Cable, the Equipment and
any Conduit, before the same are delinquent. FirstWorld shall also pay all
interest and penalties assessed by any Governmental Authority on account of late
payment of any Imposition, unless such late payment was caused by Irvine's
failure to remit an Imposition (paid to Irvine by FirstWorld), in which case
Irvine shall pay such interest and penalties. If the bill for any Imposition
which is FirstWorld's obligation to pay hereunder is sent to Irvine by the
Governmental Authority, Irvine shall deliver such bill to FirstWorld as soon as
reasonable possible after Irvine's receipt of the same.

7. 2. ASSESSMENTS IN INSTALLMENTS. To the extent permitted by
Applicable Law, FirstWorld shall have the right to apply for conversion of any
assessment or Imposition to cause it to be payable in installments. After such
conversion, FirstWorld shall pay and discharge only such installments of such
assessment or Imposition as shall become due and payable during the Term.

7. 3. DIRECT PAYMENT BY IRVINE. If any Person entitled to receive
payment of an Imposition refuses to accept it from FirstWorld, then FirstWorld
shall give Irvine notice of such fact and shall remit payment of such Imposition
to Irvine in a timely manner, and Irvine shall thereafter be responsible for
remitting the same to such Person.

7. 4. RIGHT TO CONTEST. Notwithstanding anything to the contrary
in this Agreement, FirstWorld shall have the right to contest, at its sole
expense, by appropriate legal proceedings diligently conducted in good faith,
the amount or validity of any Imposition or other tax or fee and the valuation,
assessment or reassessment (whether proposed or final) of FirstWorld's property
or any Conduit for purposes of real and personal property taxes. FirstWorld may
defer payment of the contested amount pending the outcome of such contest,
provided that such deferral does not subject any portion of the Conduit or any
other right or asset of Irvine, to any risk of forfeiture or Irvine to any risk
of criminal liability. Irvine shall not be required to join in any such contest
proceedings unless such proceedings must be brought in the name of Irvine,
provided however, that Irvine shall have the right to participate in any such
proceedings to the extent it determines that such participation is necessary or
appropriate to protect its interests, and Irvine shall be entitled to be
reimbursed by FirstWorld upon demand for legal fees incurred by it in
participating in any such proceeding. If any such proceedings must be brought
in Irvine's name, Irvine shall cooperate with FirstWorld so as to permit such
proceedings to be brought in Irvine's name. FirstWorld shall pay all reasonable
costs and expenses (including reasonable attorneys' fees) incident to such
proceedings. FirstWorld shall be entitled to any refund of any contested amount
(and penalties and interest paid by FirstWorld) to the extent such refund is of
amounts previously paid by FirstWorld with regard to such contested amount,
whether such refund is made during or after the Term of this Agreement. Upon
termination of FirstWorld's contest of any amount, FirstWorld shall pay the
amount (if any) as has been finally determined in such proceedings to be due,
together with any costs, interest, penalties or other liabilities in connection
with such Imposition.

CONSTRUCTION AND MAINTENANCE OF NETWORK

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8. 1. CONSTRUCTION.

8. 1. 1. Prior to the installation of any FirstWorld
Equipment, FirstWorld shall, at its sole cost and expense, prepare and deliver
to Irvine working drawings, plans and specifications (the "Plans") which shall
specifically describe all construction work. No work shall commence until
Irvine has approved the Plans in writing, which approval shall not be
unreasonably withheld, conditioned or delayed. If Irvine fails to approve or
disapprove any Plans within thirty (30) days after the receipt of the same, such
Plans shall be deemed to have been approved by Irvine. All work by FirstWorld
shall be performed in a neat, safe and workmanlike manner and in accordance with
all Applicable Laws. FirstWorld shall obtain, prior to such work, any necessary
governmental permits, licenses and approvals, copies of which shall be delivered
to Irvine before commencement of the work. In performing the work FirstWorld
shall not unreasonably disrupt, adversely affect or interfere with any other
licensee, service provider or tenant of a Building, and any such interference
shall be immediately rectified following written or oral notice from Irvine.
All work shall be performed in compliance with Irvine's standard construction
rules and insurance requirements for the Building, which shall be made available
to FirstWorld upon submittal of any Plans for work.

8. 1. 2. In the event FirstWorld is the first competitive
access provider to actually provide service to a particular Building, then
FirstWorld shall, at its sole expense, design, engineer and install a building
entrance conduit system, having a capacity equal to two hundred percent (200%)
of the capacity initially required by FirstWorld to service such Building, that
connects the minimum point of entry ("MPOE") of that Building to the most
appropriate street access point, which access point shall be subject to the
reasonable prior written approval of Irvine, such approval not to be
unreasonably withheld or conditioned. The installation by FirstWorld of the
building entrance conduit system shall be pursuant to plans approved by Irvine
(such approval not to be unreasonably withheld or conditioned) and in accordance
with the construction requirements set forth above. Any approval requested of
Irvine pursuant to this Section 8.1.2 shall be deemed granted if Irvine fails to
respond to a request for such approval within thirty (30) days after its receipt
of such request. In the event that Irvine desires to grant to any other person
or entity the right or license to use a building entrance conduit system
installed by FirstWorld, then, as a condition precedent to Irvine's grant of any
such right or license to such other Person or entity, Irvine shall pay, or shall
cause such Person or entity to pay, FirstWorld fifty percent (50%) of all costs
incurred by FirstWorld in installing such building entrance conduit system, as
specified in the applicable quarterly report submitted by FirstWorld pursuant to
Section 5.3. If for any reason FirstWorld fails to report the costs incurred by
FirstWorld in installing a building entrance conduit system for any particular
Building in its quarterly report for the quarter in which the same was
installed, Irvine, as its sole remedy for such failure, shall not be obligated
to pay or cause the payment of any portion of the costs incurred for such
installation in connection with the grant of any right or license to use such
building entrance conduit system. For purposes of calculating such payment, the
amount of costs incurred by FirstWorld in installing such building entrance
conduit system shall be increased by multiplying such costs incurred by
FirstWorld by a fraction, the numerator of which is the CPI immediately prior to
Irvine's or such other Person's or entity's payment to FirstWorld and the
denominator of which shall be the CPI upon FirstWorld's completion of the
initial installation of such building

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<PAGE>

entrance conduit system; provided, however, that such calculation shall not in
any event decrease the amount of costs incurred by FirstWorld in installing such
building entrance conduit system.

8. 1. 3. With respect to any building entrance conduit system
installed by FirstWorld, FirstWorld shall register such installation with such
Underground Agencies as are reasonable and appropriate to identify the location
of such system. In the event such a building entrance conduit system already
exists to serve a particular Building, Irvine shall make available to FirstWorld
any excess capacity in such system required by FirstWorld to provide service to
such Building which is available to or controlled by Irvine.

8. 2. LIENS. FirstWorld shall be responsible for the satisfaction
or payment of any liens for any provider of work, labor, material or services
claiming by, through or under FirstWorld. FirstWorld shall also indemnify, hold
harmless and defend Irvine against any such liens, including the reasonable fees
of Irvine's attorneys. Such liens shall be discharged by FirstWorld within
thirty (30) days after notice of recordation thereof by bonding, payment or
otherwise. Subject to the foregoing, FirstWorld may contest, in good faith and
by appropriate proceedings, any such liens, provided, however, that Irvine may
require FirstWorld to bond any liens which FirstWorld may contest to assure that
any property of Irvine is protected from such lien during the period for which
any contest is pending. The provisions of this Section shall survive
termination of this Agreement.

8. 3. HAZARDOUS MATERIALS. FirstWorld shall not install any
Hazardous Material into any Building. In the event that FirstWorld shall
discover, uncover, disturb or otherwise reveal any existing Hazardous Materials
within the Building, FirstWorld shall immediately stop any work in progress and
report such findings to Irvine within twenty-four (24) hours. FirstWorld shall
not conduct any further work in the reported area without Irvine's written
approval. FirstWorld shall have three options upon discovery of Hazardous
Material and cessation of work as described above: (1) abate or remove, at its
sole cost and expense and in compliance with all applicable legal requirements,
the Hazardous Material within the route or area needed by FirstWorld to complete
its work, and only with the approval of Irvine; (2) reroute its planned access
route to avoid such Hazardous Material areas; or (3) terminate the License as to
such Building upon ten (10) days' prior written notice to Irvine.

8. 4. MAINTENANCE OF EQUIPMENT. FirstWorld shall keep each
Equipment Space and Equipment in good order, repair and condition during the
Term, and shall reimburse Irvine upon demand for the cost to repair any damage
to a Building caused by FirstWorld. FirstWorld shall at all times comply with
Applicable Law pertaining to the installation and operation of Cable and
Equipment.

8. 5. FIRSTWORLD EQUIPMENT. All Equipment shall be and shall at
all times remain the property of FirstWorld and shall not be deemed a fixture
upon or an improvement to any Building, except to the extent purchased by Irvine
or surrendered by FirstWorld upon the expiration or sooner termination of this
Agreement pursuant to Article 10. The Cable and Equipment, and any other
personal property in a Building belonging to FirstWorld, shall be there at the
sole risk of FirstWorld, and Irvine shall not be liable for damage thereto or
theft, misappropriation or loss thereof unless such damage is caused by Irvine's
sole active negligence. FirstWorld shall be solely responsible for maintaining
and servicing all such Cable and Equipment

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<PAGE>

during the Term hereof. Irvine may require that FirstWorld relocate the
Equipment Space and/or Cable and Equipment in the Building, at Irvine's expense,
so long as such relocation can be conducted in a manner that does not
unreasonably interfere with FirstWorld's operation of Equipment and does not
result in an interruption of service to FirstWorld's Customers in the Building.
Irvine shall allow FirstWorld to perform a standard cutover procedure, if
required by said relocation, which will ensure that the relocated equipment is
operational for service prior to discontinuing service from the prior service
location.

8. 6. INTERFERENCE. FirstWorld covenants that neither its
Equipment nor the installation thereof will interfere with the computer,
software, communication, information or other electronic equipment or systems of
any other tenant, licensee or occupant of any Building. If such interference
occurs (other than interference with wireless services which are not currently
available but which may become available in the future), FirstWorld shall
immediately stop the operation of its Equipment until such interference is cured
and if necessary, pay any and all costs incurred by Irvine and resulting from
the interference, including, without limitation, any costs for which FirstWorld
is obligated to indemnify Irvine hereunder. If FirstWorld cannot cure such
interference within a reasonable time (not to exceed fifteen (15) days), Irvine
may terminate the License granted hereunder (but if such interference is only as
to one or more Buildings, only with respect to the Building(s) in which such
interference occurs) upon ten (10) days written notice to FirstWorld.

8. 7. ESTABLISHMENT OF MPOE.

8. 7. 1. FirstWorld recognizes that Irvine desires to provide
access to both existing and future telecommunications services and service
providers for tenants of each Building and Irvine may deem it desirable to
achieve this objective by providing a building riser and distribution cabling
system ("BR&DCS") in the Building for use by competitive providers of wired
telecommunications services. Accordingly, and notwithstanding anything
contained in this Agreement to the contrary, Irvine reserves the right to
provide access to or install, and to require FirstWorld to utilize, a common
BR&DCS, including a main distribution frame ("MDF"), in order to reach tenant
demarcation points in the Building. In this event, the MDF shall be connected
to the MPOE demarcation point for service providers. The MDF shall also serve
as the origination point of the BR&DCS. The tenant demarcation block on each
floor of the Building will serve as the terminating point of the BR&DCS on that
floor. Notwithstanding the foregoing, nothing herein shall be deemed to
obligate Irvine to install a BR&DCS; provided, however, that if Irvine elects to
install a BR&DCS, then Irvine shall provide FirstWorld with access thereto
without the obligation to pay additional fees or other compensation to Irvine
for such access.

8. 7. 2. If Irvine elects to provide an MDF or to relocate an
MDF (and, if necessary, the MPOE), then so long as FirstWorld can utilize such
MDF to provide the same level of service to tenants of the Building that
FirstWorld is then able to provide utilizing the Equipment, then FirstWorld
shall, at FirstWorld's expense not to exceed $ *** , (i) relocate its existing
services and demarcation facilities to the MDF, if such a frame is installed;
(ii) remove its

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existing cables throughout the Building (other than from the exterior of the
Building to the MPOE along such path or paths as may be designated by Irvine,
which shall thereafter be deemed the "Raceway" for purposes of this Agreement
and which may be used by other service providers as well as FirstWorld); and
(iii) utilize the MDF for providing all new service to Building tenants once
Irvine notifies FirstWorld that the MDF is ready for service. Irvine agrees to
allow FirstWorld a reasonable amount of time (not to exceed 60 days) for proper
planning, engineering and cutover in this regard. Cutover to the MDF will be
accomplished at times other than normal business hours. Upon the completion of
such cutover, FirstWorld shall have no further rights to use of the Equipment
Space or any other parts of the Building except where necessary to the extent
contemplated in this Section 8.7.2 so long as Irvine provides an MDF to allow
FirstWorld to provide service to tenants of the Building.

8. 7. 3. If Irvine elects to provide an MDF or to relocate an
MDF (and, if necessary, the MPOE), Irvine's sole responsibility in the event of
interruption or other effects caused by malfunction, damage or destruction of
the MDF shall be to promptly repair or replace the MDF as necessary to eliminate
the cause of malfunction or interruption as soon as reasonably practicable, the
cost of which shall be borne by FirstWorld to the extent the problem was caused
directly or indirectly by FirstWorld. In limitation of the foregoing, Irvine's
obligation to repair or replace the MDF shall apply only to the extent necessary
to reach premises in the Building that will again be used by tenants upon the
completion of restoration or repair thereof. In no event shall FirstWorld have
any right to make any claim against Irvine whatsoever for any damages, whether
direct, indirect or consequential, for Irvine's failure to repair or replace the
MDF as required by this Section 8.7.3, FirstWorld's remedy being limited to a
claim for specific performance of Irvine's obligation to repair or replace as
specified above. Notwithstanding the foregoing, if Irvine fails or refuses to
repair or replace and otherwise maintain the MDF in such manner as to avoid any
malfunction or interruption in FirstWorld's service, then FirstWorld shall have
the right, but not the obligation, to make such repairs and replacements as are
reasonably necessary and to recover from Irvine all of FirstWorld's costs of
repair and replacement.

8. 7. 4. The foregoing provisions of this Section 8.7 shall
not apply to any Building which Irvine has leased in its entirety to a single
tenant. FirstWorld hereby acknowledges that Irvine would have no control over
the installation of a BR&DCS or an MDF in any such building and that FirstWorld
would need to address use, maintenance and repair of an installed BR&DCS or MDF
in any such building with such tenant.

8. 8. DAMAGE; CONDEMNATION. In the event of any physical damage
or condemnation of any Building which makes it impossible or commercially
infeasible for FirstWorld to carry out the purposes of its installation,
maintenance and operation in such Building, Irvine, at its option, may attempt
to remedy such problem within sixty (60) days, or any such period deemed
reasonable under the circumstances, after written notice thereof. In the event
that Irvine either (a) elects not to attempt to cure or remedy such a problem,
or (b) fails to provide adequate remedy within such sixty (60) day period, or
any such period deemed reasonable under the circumstances, FirstWorld may
terminate the License as to such Building upon thirty (30) days' prior written
notice to Irvine. FirstWorld shall have no obligation to provide service to
Customers of or Users in such Building or to undertake repairs or replacement of
its Equipment in such Building during any period in which Irvine is attempting
to remedy such problem. Payment of License Fees shall be abated equitably
following such damage or condemnation based upon the

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extent to which such damage or condemnation has interfered with FirstWorld's
ability to provide Network services to the Building.

COVENANTS OF IRVINE

9. 1. RIGHT-OF-WAY. In connection with the License, Irvine hereby
agrees to permit FirstWorld to enter upon such portions of the real property
owned by Irvine within the Spectrum Service Area and any Additional Areas from
time to time and not leased to third parties (unless FirstWorld obtains the
consent of such third parties to such entry), or into such easement areas as to
which easements are held by Irvine which permit Irvine to allow a third party
access over the same, as may be designated by Irvine from time to time upon
request by FirstWorld for such entry, for the purposes of installing,
maintaining, operating, repairing, replacing and augmenting conduit, cable and
the Irvine Networks for the purpose of connecting any Building to an Irvine
Network. To the extent that Irvine is permitting FirstWorld to utilize easement
rights held by Irvine, FirstWorld agrees to be bound by the terms and conditions
of said easements, insofar as they pertain to FirstWorld's utilization of the
same. FirstWorld agrees not to unreasonably interfere with any use of real
property as to which Irvine permits such entry by the owner, lessee or occupant
thereof.

9. 2. PERIODIC NOTICES. From time to time during the Term, Irvine
may, or upon written request from FirstWorld made no more frequently than once
each quarter Irvine shall, give FirstWorld written notice identifying (i) all
Buildings then under construction by or for and owned by Irvine in the Spectrum
Service Area and any Additional Area then added to the Conduit Lease and (ii)
any Buildings owned by Irvine in the Spectrum Service Area and any Additional
Area then added to the Conduit Lease as to which substantial completion of
construction has occurred, in each case, since the date any Building was last
added to or removed from this Agreement pursuant to the terms hereof. The
Parties shall endeavor from time to time to execute an Addition Memorandum in
the form of Appendix 6 hereto to specify all Buildings which have been added to
or removed from this Agreement and the effective date of such addition or
removal, provided, however, that no failure by the Parties to execute an
Addition Memorandum shall invalidate any addition to or removal of a Building
under this Agreement.

9. 3. ELECTRIC UTILITIES. Irvine shall use all reasonable efforts
to notify FirstWorld in advance of any planned utility outages which may
interfere with FirstWorld's use, provided that Irvine shall incur no liability
to FirstWorld for any failure to provide such notice. It is understood that
neither Irvine nor FirstWorld has any obligation or responsibility to provide
emergency or "back-up" power to FirstWorld, and that it is solely within
FirstWorld's determination whether it elects to provide emergency or "back-up"
power at its expense in any Building.

10.

EQUIPMENT; SURRENDER OF LICENSE

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10. 1. EQUIPMENT AND REMOVAL. Except as otherwise set forth in
this Article 10 and except for Irvine's rights to obtain title to the Equipment
pursuant to Article 12, the Equipment shall at all times be and remain the
property of FirstWorld and installation of the Equipment in any Building shall
not cause the same to become the property of Irvine. Upon the termination of
this Agreement (or, if sooner, of the License as to a particular Building), and
except as otherwise provided in Sections 10.2 and 10.3 below, FirstWorld will
elect either to (a) remove all Equipment and FirstWorld's personal property from
the Buildings (or from particular Buildings, if the License is terminated only
as to such Buildings) and repair all damage caused by such removal at its sole
cost and expense which removal shall occur within ninety (90) days after such
termination; or (b) leave in place any or all of the Equipment installed in the
Buildings by FirstWorld, in which event the same shall become the property of
Irvine following termination of this Agreement (or the earlier termination of
the License as to any Building). Any property not removed within ninety (90)
days after the termination of this Agreement shall be deemed the property of
Irvine.

10. 2. OPTION TO PURCHASE. On or before the date which is one (1)
year prior to the expiration of the Term, or as soon as reasonably possible
prior to any earlier termination of this Agreement, FirstWorld shall notify
Irvine whether FirstWorld intends to remove all of its Equipment from the
Buildings at the expiration of the Term or such earlier termination, or whether
it intends to leave the Equipment in place at the expiration of the Term. If
FirstWorld notifies Irvine that FirstWorld intends to remove all of its
Equipment from the Buildings at the expiration of the Term or such earlier
termination, then such notice shall also specify FirstWorld's determination of
the fair market value of the Equipment, and within thirty (30) days after
Irvine's receipt of such notice Irvine may by notice given to FirstWorld elect
to purchase the Equipment from FirstWorld at the expiration of the Term or
earlier termination of this Agreement for the fair market value of the same.
Any failure by Irvine to give notice of such election to purchase within such
thirty (30) day period, shall be deemed Irvine's election to not purchase the
Equipment from FirstWorld. Any notice from Irvine that it elects to purchase
the Equipment from FirstWorld shall specify whether Irvine agrees with
FirstWorld's determination of the fair market value of the Equipment. If Irvine
does not agree with FirstWorld's determination of the fair market value of the
Equipment, Irvine shall specify its own determination of such fair market value
and the Parties shall thereafter attempt to reach agreement on such fair market
value for a period of thirty (30) days after FirstWorld's receipt of Irvine's
notice that it elects to purchase the Equipment. In the event the Parties are
unable to agree upon the fair market value of the Equipment within such thirty
day period, the fair market value shall be determined by arbitration in
accordance with the provisions of Article 20, below, provided, however, that in
no event shall the fair market value of the Equipment be more than the value
specified by FirstWorld in its initial notice to Irvine or less than the value
specified by Irvine in its notice of election to purchase the Equipment.

10. 3. RENTAL OF EQUIPMENT. Notwithstanding the foregoing, if
FirstWorld desires to remove the Equipment from the Buildings at the expiration
of the Term or any earlier termination of this Agreement, and Irvine does not
elect to purchase the Equipment in accordance with the provisions of Section
10.2, above, then Irvine shall have the right (but not the obligation) upon
reasonable notice to FirstWorld to rent the Equipment from FirstWorld for the
fair market rental value thereof for a period commencing upon, and not to exceed
ninety (90) days after, the expiration of the Term or such earlier termination
of this Agreement, in which case, the obligation

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<PAGE>

of FirstWorld to remove the Equipment from the Buildings within ninety (90) days
after the expiration of the Term shall be extended for a period of time equal to
the period of time for which Irvine rents the Equipment from FirstWorld pursuant
to this Section 10.3. If the Parties are not able to agree upon the fair market
rental value of the Equipment for such period, the same shall be determined by
arbitration in accordance with Article 20, below.

11.

FINANCING

11. 1. FINANCING NOT PROHIBITED TRANSFER. Subject to and in
accordance with the terms and provisions of this Article 11, and notwithstanding
anything in this Agreement to the contrary, FirstWorld shall have the right,
without Irvine's consent, to encumber the Equipment, this Agreement and
FirstWorld's interest in the License (or a portion of the foregoing) as security
for any Financing and to file or record any Financing Encumbrance given by
FirstWorld as security for any Financing. None of the following shall be deemed
to constitute a Transfer of FirstWorld's rights under this Agreement or to
otherwise violate any provision of this Agreement prohibiting the assignment,
encumbrance, or other transfer of this Agreement or FirstWorld's rights
hereunder: (a) FirstWorld's making of a Financing Encumbrance as security for
any Financing; (b) any sale of this Agreement and of FirstWorld's interest in
the License in any proceedings for the foreclosure of any Financing Encumbrance;
(c) any assignment, transfer or conveyance to Lender in lieu of such foreclosure
(or to a Lender's designated purchaser or assignee which is a Permitted
Assignee); or (d) any sale of this Agreement and of FirstWorld's interest in the
License by Lender following Lender's acquisition of the same in any proceedings
for the foreclosure of any Financing Encumbrance, so long as such sale is to a
Person (a "Permitted Assignee"): (i) which is not insolvent or the subject of
any bankruptcy proceeding for reorganization or liquidation or (ii) with which
Irvine does not have material litigation pending. Irvine shall recognize any
purchaser of FirstWorld's interests under this Agreement pursuant to a
foreclosure sale under a Financing Encumbrance, any transferee of FirstWorld's
interests under this Agreement under an assignment in lieu of foreclosure, or,
if the Lender should be such purchaser or assignee, a direct transferee of
Lender that is a Permitted Assignee.

11. 2. COOPERATION WITH LENDER REQUIREMENTS.

11. 2. 1. Irvine acknowledges that any Lender may require,
among other things, certain protections and agreements from FirstWorld and
Irvine, anticipated to include, without limitation, the following:

(a) Security interests in all Equipment,
furniture, fixtures and other tangible and intangible property owned by
FirstWorld and incorporated into or used in connection with the Irvine Networks;
collateral assignments of all major construction and consulting contracts;
collateral assignments of FirstWorld's contracts with Customers and Users and
the rights to receive revenue thereunder; and collateral assignments of
FirstWorld's bank accounts, accounts receivable and other similar collateral
relating to the Irvine Networks.

(b) The creation of sinking funds and
reserves, the maintenance of specified financial ratios, and other similar
covenants with respect to the

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<PAGE>

development and operation of the Irvine Networks that would commonly be required
in connection with non-recourse financing.

(c) That Irvine agree (i) to recognize such
Lenders and their successors, following a foreclosure on a Financing Encumbrance
or an assignment in lieu of foreclosure, as parties having the rights and
obligations of FirstWorld under this Agreement, in the event such Lenders and
their successors elect to assume FirstWorld's rights and obligations hereunder,
and (ii) in the event of such an assumption, that such Lenders and their
successors, following a foreclosure on a Financing Encumbrance or an assignment
in lieu of foreclosure, will not be obligated to cure any of FirstWorld's
non-monetary defaults arising prior to the foreclosure which are not reasonably
capable of being cured.

11. 2. 2. Irvine agrees to cooperate in good faith with
FirstWorld's efforts to obtain Financing. In particular, if required by a
Lender, Irvine agrees to enter into one or more commercially reasonable
agreements with one or more Lenders containing or permitting the provisions
contemplated pursuant to Section 11.2.1, and which may reflect that the Lenders
may succeed to the rights of FirstWorld hereunder. FirstWorld shall reimburse
Irvine for Irvine's costs, including attorney's fees, incurred in connection
with the review and negotiation of any such agreements with Lenders if Irvine is
requested to review more than one such agreement in any calendar year. Irvine
shall not, however, be required to consent to any provision that would obligate
Irvine to repay or be liable for any cost related to any Financing. Irvine's
obligations under any such agreement with any Lender shall be considered
material obligations of this Agreement enforceable by FirstWorld against Irvine
as if fully set forth herein. Irvine agrees that all information regarding the
Lenders and their relationship with FirstWorld shall constitute Pre-Authorized
Confidential Information. Irvine's failure to enter into any such agreement
shall not limit or in any way adversely affect the rights of any Lender pursuant
to this Article 11.

11. 2. 3. Any Lender, by acceptance of any Financing
Encumbrance, agrees that it accepts the same subject to the rights of Irvine
pursuant to Article 12, below. Any agreements entered into with any Lenders
pursuant to Section 11.2.2., above, if any, shall contain provisions for the
benefit of Irvine acknowledging and confirming the rights of Irvine pursuant to
the provisions of Article 12, below, and that such Lender's rights in and to the
License, shall be subordinate to Irvine's rights to the Equipment as set forth
in this Agreement upon the expiration of this Agreement or any earlier
termination of the License.

11. 3. NOTICE OF FINANCING. If FirstWorld enters into any
Financing Encumbrance(s), then the Lender(s) thereunder shall be entitled to the
Lender protections provided for under this Agreement only from and after such
time as FirstWorld or such Lender has given Irvine written notice of the name
and address of such Lender, accompanied by a copy of the executed Financing
Encumbrance. Irvine shall, upon request, acknowledge receipt of the name and
address of any Lender (or proposed Lender). Any Lender shall provide Irvine
written notice of any change in its address.

11. 4. NOTICE OF DEFAULT AND LENDER'S CURE RIGHTS. If Irvine
shall give any notice of default or breach under this Agreement, then Irvine
shall (provided that Irvine has received notice of a Financing Encumbrance
pursuant to Section 11.3 hereof) at the same time and by the same means give a
copy of such notice to the Lender, which notice shall describe in

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<PAGE>

reasonable detail the alleged default. Upon receiving any notice of a default,
any Lender shall have the same cure period granted to FirstWorld under this
Agreement, plus (so long as such Lender is not an Affiliated Lender) the
additional time provided for below, within which to take (if such Lender so
elects) whichever of the actions set forth below shall apply with respect to the
default described in such notice of default (such actions, "Lender's Cure," and
a Lender's rights to take such actions, "Lender's Cure Rights"):

11. 4. 1. In the case of a monetary default the Lender shall
be entitled (but not required) to cure such default within a cure period
following notice of such default consisting of the cure period allowed to
FirstWorld under this Agreement plus (so long as such Lender is not an
Affiliated Lender) an additional period of twenty (20) days.

11. 4. 2. In the case of any non-monetary default that a
Lender is reasonably capable of curing without obtaining possession of the
Equipment or FirstWorld's rights under this Agreement (other than a non-monetary
default that is not reasonably susceptible of being cured by a Lender, such as a
bankruptcy of FirstWorld), the Lender shall be entitled, but not required, to:
(a) within a period following notice of such default consisting of the cure
period allowed to FirstWorld under this Agreement plus (so long as such Lender
is not an Affiliated Lender) an additional period of thirty (30) days, advise
Irvine of Lender's intention to take all reasonable steps necessary to remedy
such non-monetary default; and (b) cure the same within such period or; (c) if
the same is not reasonably susceptible of being cured within such period, duly
commence the cure of such non-monetary default within such extended period and
thereafter diligently prosecute to completion the cure of such non-monetary
default and complete such cure within a reasonable time under the circumstances,
subject to Unavoidable Delay (other than the inability of Lender to obtain
possession of the Equipment or FirstWorld's rights under this Agreement).

11. 4. 3. In the case of a non-monetary default that is not
reasonably susceptible of being cured by a Lender without obtaining possession
of the Equipment or FirstWorld's rights under this Agreement the Lender shall be
entitled (but not required) to do the following, so long as, with respect to any
defaults other than those referred to in this Section 11.4.3, such Lender has
exercised or is exercising the applicable Lender's Cure Rights as defined in
this Agreement:

(a) At any time within sixty (60) days after
notice of default, Lender shall be entitled to: (i) institute proceedings to (A)
obtain possession of the Equipment or FirstWorld's rights under this Agreement
as mortgagee (including possession by a receiver), or (B) acquire the Equipment
or FirstWorld's rights under this Agreement by foreclosure proceedings or
otherwise or (ii) unless the Lender is an Affiliated Lender, commence
negotiations for an assignment in lieu of foreclosure, and (subject to any stay
in any proceedings involving the bankruptcy, insolvency, or reorganization of
FirstWorld or the like, or any injunction, unless such stay or injunction is
lifted), prosecute the same or any combination of the same to completion with
commercially reasonable diligence subject to Unavoidable Delay, for a period not
to exceed a total of three hundred sixty (360) days.

(b) Upon obtaining possession of the Equipment or FirstWorld's rights under
this Agreement (before or after expiration of any otherwise applicable

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<PAGE>

cure period), Lender shall be entitled (but not required) to commence and
proceed with reasonable diligence and reasonable continuity to cure such non-
monetary defaults as are then reasonably susceptible of being cured by such
Lender, subject to Unavoidable Delay.

11. 4. 4. In addition to the foregoing Lender's Cure Rights,
during any period following Irvine's notice of default, any Lender shall have an
additional period of ninety (90) days beyond the time in which FirstWorld would
be obligated to act, to take any action to install Equipment or to provide
service to any Customer who requests or has requested service as may then be
required under this Agreement. No provision of this Section 11.4.4 shall be
construed to relieve or delay FirstWorld's obligations hereunder to install
Equipment or provide service.

So long as the time period for a Lender to exercise Lender's Cure Rights with
respect to a non-monetary default by FirstWorld has not expired (and provided
that all monetary defaults are cured within Lender's cure period provided for
under this Agreement), Irvine shall not terminate this Agreement or such
Lender's right to cure a default or obtain title to the License, provided,
however, that Irvine shall be permitted to proceed to seek damages on account of
such default from FirstWorld. A Lender shall not be required to continue to
exercise Lender's Cure Rights if and when the default that such Lender was
attempting to cure shall have been cured. Upon such cure and the cure of any
other defaults in accordance with this Agreement, this Agreement shall continue
in full force and effect as if no default(s) had occurred. Nothing in the
Lender protections provided for in this Agreement shall be construed to either
(i) extend the Term beyond the expiration date provided for in this Agreement
that would have applied if no default had occurred or (ii) require any Lender to
cure any default by FirstWorld that is not reasonably capable of being cured by
the Lender (such as a bankruptcy of FirstWorld) in order to preserve its rights
under this Agreement.

11. 5. OBLIGATIONS OF LENDER AND SUCCESSORS. No Lender,
in the exercise of its rights under this Agreement, shall solely on account
of such exercise be deemed to be an assignee or transferee of FirstWorld, or
mortgagee in possession of the License, so as to require such Lender to
assume or otherwise be obligated to perform any of FirstWorld's obligations
under this Agreement except when, and then only for matters accruing while,
such Lender has entered into possession of the License in the exercise of its
remedies under a Financing Encumbrance (as distinct from its rights under
this Agreement to cure any Events of Default or exercise Lender's Cure
Rights). Except for pre-existing uncured monetary defaults of FirstWorld,
which any Lender (or purchaser at foreclosure sale) shall be obligated to
cure upon becoming the owner of FirstWorld's rights hereunder, no Lender (or
purchaser at a foreclosure sale held pursuant to a Financing Encumbrance)
shall be liable under this Agreement unless and until such time as it
becomes, and in the case of the Lender only for matters accruing while it
remains, the owner of the License or FirstWorld's rights hereunder after
foreclosure or an assignment in lieu thereof. During such time, and for
matters accruing while any Lender is the owner of FirstWorld's rights
hereunder, Lender shall be fully liable and responsible for all obligations
under the terms and provisions of this Agreement. Except as to pre-existing
uncured monetary defaults of FirstWorld, which any purchaser shall be
obligated to cure, any purchaser from a Lender after the Lender's foreclosure
or acceptance of an assignment in lieu of foreclosure shall only be liable

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<PAGE>

under this Agreement from and after the time it becomes the owner of the
interests of FirstWorld in and to the License under this Agreement.

11. 6. LENDER PROTECTIONS.

11. 6. 1. No voluntary cancellation, termination, surrender,
acceptance of surrender, or abandonment, of this Agreement, nor any amendment or
modification adversely affecting a Lender's rights under this Article 11, shall
bind a Lender (other than an Affiliated Lender) if done without notice to and
the written consent of such Lender.

11. 6. 2. Any Lender shall have the right, but not the
obligation, to take possession of the License and to perform any obligation of
FirstWorld under this Agreement and to remedy any default by FirstWorld. Irvine
shall accept performance by or at the instigation of a Lender in fulfillment of
FirstWorld's obligations, for the account of FirstWorld and with the same force
and effect as if performed by FirstWorld.

11. 6. 3. A Lender shall in no event be required to cure or
commence to cure any default (if such default is provided for in this Agreement)
consisting of FirstWorld's failure to satisfy or discharge any lien, charge, or
encumbrance affecting the License or this Agreement junior in priority to the
lien of the Financing Encumbrance held by such Lender.

11. 6. 4. Any payment made by a Lender to Irvine to cure any
claimed default shall be deemed to have been made without prejudice to
FirstWorld's or the Lender's recovery of such payment if Irvine's claim of a
default shall be determined by a court of competent jurisdiction to have been
erroneous.

11. 6. 5. Any Lender may exercise its rights under this
Agreement, or perform any action permitted to be taken by a Lender under this
Agreement, through an agent.

11. 6. 6. If more than one Lender desires to exercise Lender's
Cure Rights or if more than one Lender desires to exercise any other right or
privilege provided for Lenders under this Agreement, then the Party against whom
such rights or privileges are to be exercised shall be required to recognize
either: (a) only the Lender that desires to exercise such right or privilege and
whose Financing Encumbrance is most senior in lien (as against other Financing
Encumbrances of Lenders desiring to exercise such rights) or (b) such other
Lender, as has been designated in writing by all Lenders, to exercise such right
or privilege. In such case, Irvine shall be provided joint written instructions
of all Lenders of the priority of Financing Encumbrances.

11. 7. REMEDIES. No Financing Encumbrance shall encumber or in any
other way limit or restrict Irvine's rights and remedies under this Agreement
except as expressly provided in this Agreement.

11. 8. NEW AGREEMENT. In the event that this Agreement or any
portion hereof is irrevocably rejected by a trustee or debtor-in-possession in
any bankruptcy or insolvency proceeding, Irvine agrees that it will, upon the
request of the Lender whose Financing Encumbrance is most senior (as evidenced
by the notice required under Section 11.6.6, above) execute and deliver to such
senior Lender, a new agreement containing the same covenants,

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<PAGE>

agreements, terms, provisions and limitations set forth in this Agreement and
for a term equal to the then remaining Term hereof, so long as such Lender prior
to or concurrently with Irvine's execution and delivery of such new agreement:
(a) executes and delivers to Irvine a counterpart or counterparts of such new
agreement and agrees to be bound under the covenants, agreements, terms,
provisions and limitations thereof; (b) provides Irvine with such assurances as
Irvine may reasonably require confirming that this Agreement has been
irrevocably rejected and that no trustee in bankruptcy, debtor in possession,
other Lender, or FirstWorld or any of its Affiliates will assert the continuing
effectiveness and enforceability of this Agreement; (c) cures any then existing
monetary defaults under this Agreement through the effective date of such new
agreement; (d) agrees to indemnify Irvine or provide Irvine with such other
assurances as may be reasonably satisfactory to Irvine that such Lender is the
Lender whose Financing Encumbrance is most senior; and (e) reimburses Irvine for
its reasonable attorneys' fees in connection with entering into such new
agreement.

11. 9. CONCURRENT EXERCISE. Notwithstanding any contrary
provisions of this Article 11, any Lender exercising any of its rights under
this Article 11 with regard to any Financing Encumbrance, must concurrently
exercise its rights under Article 13 of the Conduit Lease with regard to the
same Financing Encumbrance, it being the intent of the Parties that in order to
succeed to the rights of FirstWorld under this Agreement, a Lender must also
succeed to the rights of FirstWorld under the Conduit Lease and that a Lender
may not receive the benefits of this Agreement separately from the benefits and
burdens of the Conduit Lease.

12.

IRVINE CURE RIGHTS

12. 1. PURPOSE. Irvine desires to assure, to the extent feasible,
that (a) the Equipment installed by FirstWorld in connection with the Irvine
Networks remains in place and is not removed by Lender while Irvine exercises
its remedies for a default under a Financing Encumbrance or this Agreement in
the manner described in Section 12.4, or (b) that Irvine may effectively acquire
the Equipment by paying the outstanding obligations under the Financing to the
extent provided under Section 12.5, below, and thereafter foreclosing the
Financing Encumbrance.

12. 2. NOTICE OF DEFAULT. Concurrently with the giving of any
notice of any default, breach or event of default under any Financing
Encumbrance (including, without limitation, any notice of acceleration of
foreclosure of the Financing Encumbrance for any reason) to FirstWorld, or to
the party obligated thereunder if it is not FirstWorld, the Lender shall at same
time and by the same means provide a copy of such notice to Irvine at Irvine's
address for notices set forth in this Agreement, which notice shall describe in
reasonable detail the alleged default. Irvine shall provide any Lender with
written notice of any change in its address. FirstWorld agrees to provide to
Irvine a copy of any notice of change of address received by FirstWorld from any
Lender, provided, however, that no failure by FirstWorld to provide Irvine a
copy of such notice shall adversely affect the rights of a Lender pursuant to
Article 11, above.

12. 3. PRIORITY OF CURE RIGHTS. In any case where FirstWorld is in
default, has breached or there is any Event of Default, under both this
Agreement and any Financing

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<PAGE>

Encumbrance, and both Lender and Irvine would therefore have the right to
exercise their respective Cure Rights hereunder, then, notwithstanding any
contrary provision of this Agreement:

12. 3. 1. So long as the Lender is operating or causing
FirstWorld or a third party to operate the Irvine Networks and is exercising
Lender's Cure Rights pursuant to Section 11.4, above (a) Irvine shall not be
entitled to terminate this Agreement or to exercise any of Irvine's Cure Rights
and (b) the Lender's Cure Rights shall be absolutely and unconditionally prior
and superior to Irvine's Cure Rights and Lender shall be entitled to exercise
the Lender's Cure Rights and its rights and remedies under its Financing
Encumbrance and other loan documents without any direct or indirect delay,
interference, impairment or prohibition by Irvine.

12. 3. 2. If (a) the Lender is exercising the Lender's Cure
Rights under Section 11.4, above, and is acting diligently to prosecute the same
to completion, or (b) the time period for exercising Lender's Cure Rights or
commencing to exercise Lender's Cure Rights pursuant to Section 11.4 above, has
not yet expired, and (c) in either such case, the Lender is not operating or
causing FirstWorld or a third party to operate the Irvine Networks, then Irvine
shall not be entitled to terminate this Agreement, but may exercise Irvine's
Cure Rights, provided that in the event of any conflict or inconsistency between
Irvine's Cure Rights and the Lender's Cure Rights, the Lender's Cure Rights
shall be superior to Irvine's Cure Rights, but only to the extent of such
conflict or inconsistency. During any such period, the Lender shall be entitled
to exercise the Lender's Cure Rights and its rights and remedies under its
Financing Encumbrance and other loan documents without any direct or indirect
delay, interference, impairment or prohibition by Irvine, except to the extent
reasonably necessary to permit Irvine to exercise Irvine's Cure Rights.

12. 3. 3. If the Lender fails to commence to exercise the
Lender's Cure Rights within the time periods set forth in Section 11.4, above,
or after commencing the same fails to diligently prosecute the same (including
without limitation, the Lender's failure to diligently prosecute any proceeding
to obtain possession of the Leased Premises or to acquire the Leased Premises by
foreclosure, if applicable), then Irvine shall have the right upon five (5)
business days notice to Lender to exercise Irvine's Cure Rights or to enforce
against FirstWorld all of Irvine's rights and remedies for a default under this
Agreement, or both, as Irvine may elect in its sole and absolute discretion, and
without any direct or indirect delay, interference, impairment or prohibition by
Lender.

12. 4. IRVINE'S CURE RIGHTS. Subject to and in accordance with the
terms and provisions of this Article 12, upon receiving any notice of a default
under a Financing Encumbrance, Irvine shall have the right, but not the
obligation, to cure FirstWorld's default within the same cure period granted to
FirstWorld under such Financing Encumbrance, plus the additional time provided
for below, and the Lender thereunder shall accept such cure (such actions,
"Irvine's Cure," and Irvine's rights to take such actions, "Irvine's Cure
Rights"):

12. 4. 1. In the case of a monetary default, Irvine shall be
entitled (but not obligated) to cure such default within a cure period following
notice of such default consisting of the cure period allowed to FirstWorld (or
any other obligor under such Financing Encumbrance if FirstWorld is not the
obligor thereunder) plus an additional period of twenty (20) days; provided,
however, that if the Lender is in a position to conduct a foreclosure sale in

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connection with such default prior to the expiration of said twenty (20) day
period, then Irvine's additional cure period (i.e., in addition to the cure
period allowed FirstWorld) shall be shortened from twenty (20) days to the
greater of ten (10) days or the number of days within said twenty (20) day
period prior to the date on which the Lender is in a position to conduct a
foreclosure sale.

12. 4. 2. In the case of any non-monetary default that Irvine
is reasonably capable of curing, Irvine shall be entitled (but not obligated) to
cure such default within a period following notice of such default consisting of
(a) the cure period allowed to FirstWorld (or any other obligor under such
Financing Encumbrance if FirstWorld is not the obligor thereunder) under such
Financing Encumbrance plus an additional thirty (30) days, or (b) if the default
is not reasonably susceptible of being cured within said thirty (30) day period,
to duly commence the cure of such non-monetary default within said thirty (30)
day period and thereafter diligently prosecute to completion the cure of such
non-monetary default and complete such cure within a reasonable time under the
circumstances, not to exceed a total of ninety (90) days after the date a notice
of such default was delivered to Irvine. Notwithstanding the foregoing, if the
Lender is in a position to conduct a foreclosure sale in connection with such
non-monetary default prior to the expiration of said thirty (30) or ninety (90)
day period, as applicable, then Irvine's additional cure period (i.e., in
addition to the cure period allowed FirstWorld) shall be shortened from thirty
(30) days or ninety (90) days, as applicable, to the greater of ten (10) days or
the number of days within said thirty (30) or ninety (90) day period prior to
the date on which the Lender is in a position to conduct a foreclosure sale.

12. 4. 3. In the event that Irvine makes any payment to Lender
or otherwise expends any funds to cure any claimed default by FirstWorld under a
Financing, then FirstWorld shall be obligated upon Irvine's demand to reimburse
Irvine for all sums so expended by Irvine (including any premium over par paid
in connection with a partial release of the Irvine Network from the lien of the
Financing Encumbrance which affects any Networks in addition to Irvine Networks,
as provided in Section 12.5.1, but excluding amounts expended in connection with
Irvine's purchase of the Financing at par pursuant to Section 12.5), together
with interest at an interest rate of *** percent ( *** %) per annum, but in no
event to exceed the maximum rate permitted by law, from the date Irvine made any
payment or otherwise expended funds through the date of reimbursement.

Any payment made by Irvine to a Lender to cure any claimed
default shall be deemed to have been made without prejudice to FirstWorld's or
Irvine's recovery of such payment if such Lender's claim of a default shall be
determined by a court of competent jurisdiction to have been erroneous.

12. 5. PURCHASE OF FINANCING ENCUMBRANCE; SUBROGATION. In addition
to Irvine's Cure Rights as described in Section 12.4, upon receiving a notice of
default under a Financing Encumbrance, Irvine shall have the right to pay the
Financing Encumbrance (or the portion thereof determined as provided in Section
12.5.1 where the Financing which is secured by

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the Financing Encumbrance is secured by assets of the obligor in addition to the
Irvine Networks) in full (including, without limitation, unless Lender is an
Affiliated Lender, any premium over par payable for a partial release as
provided in Section 12.5.1, late charges, default interest, default costs,
prepayment penalties, and other fees and charges imposed by the Lender), and in
connection therewith to be subrogated to and receive an assignment by Lender to
Irvine of the rights of the Lender against FirstWorld, including the rights of
the Lender under its Financing Encumbrance. Thereafter, Irvine shall be free to
enforce its remedies as holder of the Financing, including foreclosure of the
Financing Encumbrance.

12. 5. 1. Any Financing Encumbrance which is given by
FirstWorld after the date of this Agreement to secure Financing which encumbers
any Networks in addition to Irvine Networks shall contain provisions permitting
the release of the Irvine Network from the lien of the Financing Encumbrance
upon payment of not more than *** % of those portions of the Financing allocable
to the Irvine Networks.

12. 5. 2. Irvine shall have the right (but not the obligation)
to negotiate with any Lender for an intercreditor agreement which would contain
provisions allowing Irvine to obtain, or to cause a third party who will provide
telecommunication service on the Irvine Networks and to whom Irvine may assign
its cure rights as contemplated by this Article 12 to obtain, financing for
Irvine's or said third party's acquisition of the Financing Encumbrance (or the
portion thereof determined as provided in Section 12.5.1) pursuant to Section
12.5, so long as Irvine or such assignee of Irvine is approved by Lender based
upon Lender's completion of its normal underwriting procedures. In such event:
(a) FirstWorld does not represent, warrant or guarantee that such Lender will
negotiate with Irvine or accept any of Irvine's proposals; (b) successful
completion of such negotiations shall not be a condition precedent, condition
concurrent or condition subsequent to any rights of FirstWorld or obligations of
Irvine under this Agreement, nor shall Irvine's failure to reach agreement with
such Lender constitute a default, or entitle Irvine to any remedy, hereunder;
(c) Irvine shall negotiate in good faith and shall not interfere with or in any
manner delay the closing by FirstWorld or any affiliate of FirstWorld of any
Financing; and (d) if Irvine is unsuccessful in negotiating any intercreditor
agreement, then Irvine shall have only the rights set forth in this Agreement,
and no other rights.

12. 6. RIGHT TO BID AT FORECLOSURE SALE. In the event of
foreclosure of a Financing Encumbrance, Irvine shall be entitled to bid at such
sale on the same terms as, and without any priority or preference over, any
other third person bidder.

13.

DEFAULTS; REMEDIES

13. 1. EVENTS OF DEFAULT. The occurrence of any one or more of the
following shall be deemed to be an event of default ("Event of Default") by a
Party in the performance of its duties and obligations arising under this
Agreement.

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*** CONFIDENTIAL TREATMENT REQUESTED

27
<PAGE>

13. 1. 1. A Party breaches or defaults in the performance of
any of such Party's duties or obligations arising under this Agreement involving
the payment of money, and after receiving written notice thereof from the other
Party, fails within ten (10) days from receipt of such notice to have fully
cured and corrected such breach or default.

13. 1. 2. A Party breaches or defaults in the performance of
any of such Party's material duties or obligations arising under this Agreement
that do not involve the payment of money, and after receiving written notice
thereof from the other Party, fails within thirty (30) days from receipt of such
notice (or such longer time as may reasonably be required to cure the default so
long as the defaulting Party commences to cure such failure within such thirty
(30) day period and diligently prosecutes such cure to completion) to have fully
cured and corrected such breach or default;

13. 1. 3. A Party makes an assignment of its rights hereunder
for the benefit of its creditors.

13. 1. 4. The filing by or against a Party of a petition to
have a Party adjudged a Chapter 7 debtor under the Bankruptcy Code or to have
debts discharged or a petition for reorganization or arrangement under any law
relating to bankruptcy (unless, in the case of a petition filed against a Party,
the same is dismissed within thirty (30) days).

13. 1. 5. A Person (other than the other Party) obtains an
order or decree in any court of competent jurisdiction enjoining or prohibiting
a Party from substantially performing its obligations under this Agreement, and
such decree is not vacated within sixty (60) days after the granting thereof.

13. 1. 6. All or substantially all of the assets of a Party
are assumed by a trustee or other Person pursuant to a judicial proceeding,
unless possession or control of its assets is returned to such Party within
sixty (60) days.

13. 1. 7. Any representation, warranty, certification or
statement made in this Agreement by a Party shall prove to have been incorrect
in any material respect when made.

Any Event of Default by a Party of its obligations under the
Conduit Lease.

13. 2. WAIVER. No waiver of any Event of Default shall be valid or
effective unless in writing and signed by the waiving Party. Any waiver of any
one Event of Default shall not constitute, or be construed as creating, a waiver
of any other Event of Default.

13. 3. REMEDIES. Upon the occurrence of an Event of Default, then,
subject to the rights of Lenders under Articles 11 and 12, the non-defaulting
Party shall have all remedies available at law or in equity, except as
specifically provided herein. Such remedies shall include, without limitation:

13. 3. 1. The non-defaulting Party may terminate this
Agreement. Upon such termination the terminating Party shall be entitled to
recover from the breaching or

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defaulting Party, all damages proximately caused by such breach or default,
except as otherwise limited pursuant to the terms of this Agreement.

13. 3. 2. The non-defaulting Party shall not be under any
obligation to observe or perform any covenant of this Agreement on its part to
be observed or performed which accrues after the date of any default by the
other Party unless and until the default is cured by the defaulting Party, other
than those provisions which are for the benefit of any Lender.

13. 3. 3. No delay or omission of either Party to exercise any
right or remedy shall be construed as a waiver of the right or remedy or of any
default. The acceptance by Irvine of License Fees or any other sums payable
hereunder shall not be a (i) waiver of any preceding breach or default by
FirstWorld of any provision of this Agreement, other than the failure of
FirstWorld to pay the particular License Fee or other sums accepted, regardless
of Irvine's knowledge of the preceding breach or default at the time of
acceptance of the same, or (ii) a waiver of Irvine's right to exercise any
remedy available to Irvine by virtue of the breach or default. The acceptance
of any payment from a debtor in possession, a trustee, a receiver or any other
Person acting on behalf of a Party or its estate shall not waive or cure a
default under this Agreement. No payment by FirstWorld or receipt by Irvine of a
lesser amount than the sums required by this Agreement shall be deemed to be
other than a partial payment on account of the earliest due License Fees or
other sums, nor shall any endorsement or statement on any check or letter be
deemed an accord and satisfaction and Irvine shall accept the check or payment
without prejudice to Irvine's right to recover the balance of the License Fees
or other sums or pursue any other remedy available to it. No act or thing done
or not done by FirstWorld or Irvine or their agents during the Term shall be
deemed a surrender or an acceptance of surrender of the License, and no
agreement to accept a surrender shall be valid unless in writing and signed by
Irvine and consented to by each Lender.

13. 4. LATE PAYMENTS. Any License Fees or other sums due under
this Agreement that are not paid to Irvine within five (5) days of the date when
due shall bear interest at the rate of *** % per annum, but in no event to
exceed the maximum rate permitted by law, from the date due until fully paid.
The payment of interest shall not cure any default by FirstWorld under this
Agreement. In addition, FirstWorld acknowledges that the late payment by
FirstWorld to Irvine of License Fees or other sums will cause Irvine to incur
costs not contemplated by this Agreement, the exact amount of which will be
extremely difficult and impracticable to ascertain. Those costs may include,
but are not limited to, administrative, processing and accounting charges, and
late charges which may be imposed on Irvine by the terms of other agreements to
which Irvine is a party. Accordingly, if any License Fees or other sums due
from FirstWorld shall not be received by Irvine or Irvine's designee within five
(5) days after the date due, then FirstWorld shall pay to Irvine, in addition to
the interest provided above, a late charge in the amount of *** Dollars ($ *** )
for each delinquent payment. Acceptance of a late charge by Irvine shall not
constitute a waiver of FirstWorld's default with respect to the overdue amount,
nor shall it prevent Irvine from exercising any of its other rights and
remedies.

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*** CONFIDENTIAL TREATMENT REQUESTED

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13. 5. RIGHT TO PERFORM. All covenants and agreements to be
performed by either Party under this Agreement shall be performed at such
Party's sole cost and expense and without any abatement of payments due
hereunder or right of set-off. If either Party fails to pay any sum of money,
other than License Fees, or fails to perform any other act on its part to be
performed under this Agreement, and the failure continues beyond any applicable
grace period set forth in this Agreement, then in addition to any other
available remedies, the other Party may, at its election make the payment or
perform the other act on the part of the Party which failed to pay or perform.
Either Party's election to make a payment or perform an act on the other Party's
part shall not give rise to any responsibility of the paying or performing Party
to continue making the same or similar payments or performing the same or
similar acts. Any Party which fails to pay any sum of money or perform any act
required of it hereunder shall, promptly upon demand by the other Party,
reimburse the other Party for all sums paid by the other Party, if any, and all
necessary incidental costs, together with interest at the rate of *** % per
annum, but in no event to exceed the maximum rate permitted by law, from the
date of the payment by the other Party. Each Party shall thereafter have the
same rights and remedies for a failure to pay those amounts as it would have in
the event of a monetary default by the other Party.

13. 6. WAIVER OF JURY TRIAL. IRVINE AND FIRSTWORLD EACH
ACKNOWLEDGES THAT IT IS AWARE OF AND HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE
WITH RESPECT TO ITS RIGHTS TO TRIAL BY JURY, AND EACH PARTY DOES HEREBY
EXPRESSLY AND KNOWINGLY WAIVE AND RELEASE ALL SUCH RIGHTS TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY HERETO AGAINST
THE OTHER (AND/OR AGAINST ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, OR
SUBSIDIARY OR AFFILIATED ENTITIES) ON ANY MATTERS WHATSOEVER ARISING OUT OF OR
IN ANY WAY CONNECTED WITH THIS AGREEMENT, AND/OR ANY CLAIM OF INJURY OR DAMAGE.

13. 7. LIMITATION. The obligations of Irvine hereunder do not
constitute the personal obligations of the individual partners, members,
trustees, directors, officers or shareholders of Irvine. Except for the
obligations of FWC pursuant to the Guaranty to be executed and delivered by FWC
in favor of Irvine concurrently with the execution and delivery of this
Agreement, the obligations of FirstWorld hereunder do not constitute the
personal obligations of the individual partners, members, trustees, directors,
officers or shareholders of FirstWorld.

13. 8. DAMAGES LIMITATION. Neither Party shall be entitled to
recover from the other Party any award of punitive damages, or any award for
profits lost by such Party on account of the other Party's failure to perform
its obligations under this Agreement (other than the right of Irvine to recover
unpaid Rent due or Rent which would have become due under the Conduit Lease
after a breach thereof by FirstWorld). Without limiting the generality of the
foregoing, the foregoing waiver of the right to recover lost profits shall apply
(a) to any claims by FirstWorld that it lost Customers or potential Customers
due to a breach by Irvine and (b) to any claims by Irvine that it lost tenants
or potential tenants for its properties due to a breach by FirstWorld. The
foregoing limitation shall not, however, be construed as a waiver of any rights
of Irvine to recover sums expended pursuant to Section 11.3.4, above.

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14.

SALE OF NETWORKS

14. 1. FIRSTWORLD'S RIGHT TO ASSIGN. FirstWorld shall not either
voluntarily or by operation of law, assign, encumber (except in accordance with
Article 11) or otherwise transfer its rights under this Agreement, or sublicense
or otherwise permit the use of the License by anyone other than FirstWorld (any
of the foregoing being a "Transfer") without the prior written consent of
Irvine, which consent shall not be unreasonably withheld or conditioned. For
purposes of this Agreement, any sale of a controlling percentage of the shares
of FirstWorld (except by or to a Lender which is not an Affiliated Lender in
connection with the enforcement by Lender of its remedies), shall be deemed to
constitute a Transfer of this Agreement. Any purported Transfer without
Irvine's consent shall be void and of no force or effect. Except to the extent
permitted under Section 14.6, below and Article 11, above, in no event shall
FirstWorld have the right to Transfer this Agreement or any of its rights
hereunder separately from the Irvine Networks and the Conduit Lease, and any
attempted transfer of this Agreement or any of FirstWorld's rights hereunder
separate from the Irvine Networks and the Conduit Lease shall be void and of no
force or effect.

14. 2. SUBMITTAL FOR CONSENT. If FirstWorld desires to Transfer
this Agreement, then unless Irvine's consent is not required hereunder for such
Transfer, FirstWorld shall notify Irvine at least thirty (30) days in advance of
the proposed Transfer and shall submit to Irvine concurrently with such notice:
(a) the name and address of the proposed transferee, (b) financial statements
for the proposed transferee, (c) a description of the proposed transferee's
business experience in the telecommunications industry, (d) a copy of the
proposed instrument effecting the Transfer and (e) such other information as
Irvine may reasonably request in connection with its review of the proposed
Transfer. Within thirty (30) days after Irvine's receipt of such information,
Irvine may consent to the proposed Transfer or disapprove of the proposed
Transfer. If Irvine disapproves of the proposed Transfer, Irvine's notice of
disapproval shall specify its reasons for disapproving of the same. Any failure
by Irvine to consent to or disapprove such Transfer within such thirty (30) day
period shall be deemed to constitute Irvine's consent to such Transfer.
FirstWorld acknowledges that this Agreement is being entered into by Irvine to
provide telecommunications service to the Spectrum, and any Additional Areas,
and that it shall be reasonable for Irvine to withhold its consent to a proposed
Transfer if Irvine reasonably determines that the proposed transferee will be
unable to provide such service at such level and quality as is then reasonably
expected by occupants of Spectrum and any Additional Areas.

14. 3. EFFECT OF TRANSFER. No Transfer, even with the consent of
Irvine, shall relieve FirstWorld of its obligations under this Agreement.
Except as provided in Article 11, each transferee of FirstWorld, shall be deemed
to assume all obligations of FirstWorld under this Agreement and shall be liable
jointly and severally with FirstWorld for the payment of all License Fees and
other sums payable hereunder, and for the due performance of all of FirstWorld's
obligations under this Agreement, except that in the case of a sublicense such
assumption shall be limited to the obligations relating to the sublicensed
Buildings. Except as provided in Article 11, no Transfer shall be binding on
Irvine unless a document memorializing the Transfer is delivered to Irvine and
both the assignee/sublicensee and FirstWorld deliver to Irvine an executed
consent to transfer instrument in a form reasonably required by Irvine and
consistent with the requirements

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of this Article. The acceptance by Irvine of any payment due under this
Agreement from any other Person shall not be deemed to be a waiver by Irvine of
any provision of this Agreement or to be a consent to any Transfer. Consent by
Irvine to one or more Transfers shall not operate as a waiver or estoppel to the
future enforcement by Irvine of its rights under this Agreement.

14. 4. RIGHT OF FIRST REFUSAL. In the event that FirstWorld
desires to sell the Irvine Networks, or a direct controlling interest in
FirstWorld, Irvine shall have a continuing right of first refusal as to any such
transactions. FirstWorld agrees to provide Irvine with written notice of the
terms and provisions of any such proposed transaction. Irvine shall have
fifteen (15) days after its receipt of notice of such terms and provisions to
exercise its right of first refusal. If Irvine does not exercise the same
within such fifteen (15) day period, Irvine shall be deemed to have waived such
right as to the transaction for which notice was given, and FirstWorld shall
thereafter have the right for a period of one hundred eighty (180) days
thereafter to complete the proposed transaction at a price not less than
ninety-five (95) percent of that set forth in the notice given to Irvine and
with no material changes to other terms of the transaction which would
reasonably be considered to be monetary or financial terms of the transaction.
This right of first refusal shall not be construed to apply to any Financing or
to the pledge of FirstWorld's shares as security for a Financing, or to any
transfer by or to a Lender. Any information provided in connection with a
transaction to which this right of first refusal would apply shall be
Pre-Authorized Confidential Information, including, without limitation, any
notice of the terms and provisions of any proposed transaction. In the event
that FirstWorld intends to undertake a public offering of its shares, FirstWorld
shall have the right to notify Irvine prior to commencing efforts towards such
public offering and the parties shall for a period of thirty (30) days following
such notice attempt in good faith to negotiate a private transaction involving
the sale to Irvine of the shares of FirstWorld to be offered to the public. If
FirstWorld and Irvine are unable to negotiate such a transaction within such
thirty (30) day period, the Parties shall negotiate in good faith to establish a
procedure to apply the right of first refusal of Irvine set forth in this
Section 14.4 to the structure of the proposed public offering and shall use
their best efforts to conclude such negotiations within fifteen (15) days after
the end of such thirty (30) day period.

14. 5. PERMITTED TRANSFERS. Notwithstanding any contrary provision
of Article 14, FirstWorld shall have the right, without obtaining the prior
consent of Irvine: (a) to assign this Agreement to an Affiliate, so long as such
assignment occurs concurrently with the assignment to such Affiliate of the
Conduit Lease and all of the Irvine Networks ; (b) to assign this Agreement in
connection with a reorganization or merger, so long as concurrently with such
assignment the Conduit Lease and all of the Irvine Networks are assigned to the
same entity as this Agreement; and (c) to encumber its rights under this
Agreement in accordance with Article 11, above.

14. 6. MULTIPLE NETWORKS. FirstWorld shall have the right to
provide service to the Spectrum Service Area through a single Network or through
multiple Networks, and may provide service to any Additional Area added to this
Agreement from the Spectrum Network or from an Additional Network. If
FirstWorld elects to provide service to any portion of the Spectrum Service Area
or any such Additional Area through more than one Network, FirstWorld may need
to assign or partially assign this Agreement to a separate Affiliate formed by
FirstWorld or by FWC for such purpose. In such event, the Parties shall work
together in good faith to determine a mutually satisfactory method for partially
assigning FirstWorld's rights under this

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Agreement to such Affiliate while protecting both Parties rights and obligations
hereunder. In connection with such provision of service by any Additional
Network, FirstWorld may sublicense one or more Buildings to an Affiliate formed
by FirstWorld or FWC for such purpose, provided, however, that Irvine shall be
provided a copy of any proposed sublicense prior to the execution thereof and
shall have the right to require both FirstWorld and the proposed
sublicensee/Affiliate to enter into such further agreements with regard to such
sublicense as Irvine may determine are reasonably necessary to protect its
rights under this Agreement. FirstWorld shall reimburse Irvine for Irvine's
costs, including attorneys' fees, incurred in connection with any assignment or
sublicense pursuant to this Section 14.6.

15.

TRANSFER OF BUILDINGS

15. 1. TRANSFER OF SINGLE BUILDING. Upon any sale, conveyance or
other transfer of title to any Building by Irvine, Irvine may either remove such
Building from this Agreement effective upon the date of such sale, conveyance or
other transfer, or may require FirstWorld to enter into a separate
telecommunications license agreement for such Building (an "Individual License
Agreement"). Such Individual License Agreement would provide for a License Fee
based upon the Additional License Fee Base, and shall otherwise be on a form to
be agreed to between the Parties as soon as reasonably possible after the date
of this Agreement, but no such separate Individual License Agreement shall
contain any provisions of this Article 15, Section 6.2, above, or any other
provisions of this Agreement which would be inapplicable to a single building
Individual License Agreement. Such separate agreement would be entered into
upon fifteen (15) days notice from Irvine to FirstWorld and would be effective
as of the date of any such sale, conveyance or other transfer. Any such
separate agreement may be entered into by Irvine and assigned to the purchaser
or other transferee, or at Irvine's request may be entered into directly between
FirstWorld and such purchaser or other transferee. In the event that a separate
Individual License Agreement is entered into by Irvine or by the purchaser or
other transferee upon a sale, conveyance or other transfer of any Building by
Irvine, then the Adjusted Gross Combined Revenues from such Building shall
continue to be included in the calculation of Bonus Percentage Rent under the
Conduit Lease for so long as FirstWorld is providing services to the tenants
and/or owner of such Building.

15. 2. TRANSFER OF PORTFOLIO. In the event Irvine sells, conveys
or otherwise transfers title to multiple Buildings representing a substantial
portion of the Buildings to an Affiliate, a newly formed entity or a third
party, Irvine shall have the right to partially assign this Agreement to such
Person as to the Buildings so transferred and the Parties shall work together to
determine a mutually satisfactory method for partially assigning Irvine's rights
under this Agreement to such Person while protecting both Parties rights and
obligations hereunder.

16.

INSURANCE; INDEMNIFICATION

16. 1. FIRSTWORLD INDEMNITY. FirstWorld shall indemnify, defend,
protect and hold harmless Irvine its principals, officers, directors, agents,
employees and servants from

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and against any and all losses, costs, expenses, claims, liabilities and damages
(including reasonable attorneys' fees) arising directly or indirectly from (a)
the operation of the Networks, by FirstWorld or its employees, agents, or
contractors, (b) FirstWorld's breach of its obligations or representations under
this Agreement, (c) FirstWorld's exercise of any rights of entry periodically
provided to FirstWorld as contemplated by Section 9.1, above, or (d) the
construction, operation, maintenance and repair of Cable and Equipment or use of
the Equipment Space, in each of the above cases except to the extent ultimately
proved to be caused by the sole active negligence or willful misconduct of
Irvine, its employees, agents or contractors, or Irvine's breach of its
obligations, representations or warranties under this Agreement. In cases of
alleged negligence, or any alleged breach of an obligation, representation or
warranty by Irvine under this Agreement, asserted by third parties against
Irvine which arise out of, are occasioned by, or are in any way attributable to
any of the matters specified in clauses (a) through (d), above, FirstWorld shall
accept any tender of defense for Irvine and shall, notwithstanding any
allegation of negligence or willful misconduct on the part of Irvine, defend
Irvine and pay all costs, expenses and attorneys' fees incurred in connection
with such litigation, provided that FirstWorld shall not be liable for any such
injury or damage, and Irvine shall reimburse FirstWorld for the reasonable
attorneys' fees and costs incurred by FirstWorld, all to the extent and in the
proportion that such injury or damage is ultimately determined by a court of
competent jurisdiction (or in connection with any negotiated settlement agreed
to by Irvine) to be attributable to the sole active negligence or willful
misconduct of Irvine, or Irvine's breach of any its obligations, representations
or warranties under this Agreement. The provisions of this Section shall
survive termination of this Agreement.

16. 2. EXEMPTION OF IRVINE FROM LIABILITY. FirstWorld hereby
agrees that Irvine, including Irvine's officers, trustees, partners, affiliates,
directors, agents, management contractors and representatives (collectively
referred to as "Irvine's Affiliates"), shall not be liable for, and FirstWorld
hereby irrevocably waives any claim against such parties for, injury to
FirstWorld's business or loss of income therefrom or for damage to Cable and/or
Equipment or other property of FirstWorld, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, heating, ventilation, air conditioning or lighting
fixtures, or from any other cause; provided, however, that the foregoing shall
not limit Irvine's liability for a default by Irvine of an express
representation, warranty, covenant or obligation set forth in this Agreement or
the Conduit Lease or from the sole active negligence of Irvine or its employees,
agents or contractors. Irvine and Irvine's Affiliates shall not be liable for
any damage arising from any act or neglect of any other tenant of any Building.

16. 3. IRVINE INDEMNITY. Irvine shall indemnify, protect and hold
harmless FirstWorld, its principals, officers, directors, agents, employees and
servants from and against any and all losses, costs, expenses, claims,
liabilities and damages (including reasonable attorneys' fees) arising directly
or indirectly from the sole active negligence or willful misconduct of Irvine,
its employees, agents or contractors, or Irvine's breach of its obligations,
representations or warranties under this Agreement. The provisions of this
Section shall survive termination of this Agreement.

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16. 4. FIRSTWORLD INSURANCE. FirstWorld shall procure and maintain
in force, or cause to be procured and maintained in force, throughout the Term
of this Agreement, the following insurance coverage:

16. 4. 1. A Commercial General Liability policy with a
combined single limit of at least *** Dollars ($ *** ) per occurrence and ***
Dollars ($ *** ) in the aggregate. Such Comprehensive General Liability policy
shall include a Broad Form Endorsement including: Broad Form Property Damage;
Contractual Liability; Products and Completed Operations; and Explosion,
Collapse and Underground.

16. 4. 2. A Business Auto Policy providing a liability limit
of at least *** Dollars ($ *** ) for each accident and covering owned and
non-owned and hired automobiles.

16. 4. 3. A Workers' Compensation and Employer's Liability
policy providing California statutory Workers' Compensation benefits, including
Employer's Liability with at least the following limits:

Bodily Injury by Accident: $ *** each accident

Bodily Injury by Disease: $ *** policy limit

Bodily Injury by Disease: $ *** each employee

In addition, each Workers' Compensation and Employer's Liability policy shall
contain an insurer's waiver of subrogation in favor of Irvine.

16. 4. 4. A Builder's Risk policy or a Course of Construction
policy providing a liability limit of at least *** Dollars ($ *** ) covering any
Equipment, Conduit or Networks during the course of construction (including,
without limitation, installation of Cable into the Conduit) against loss or
damage caused by All Risk Builders Risk perils.

16. 4. 5. Fire and All Risk insurance in an amount not less
than *** Dollars ($ *** ) per occurrence.

16. 4. 6. A Transmission and Distribution All Risk policy in
an amount not less than *** Dollars ($ *** ) with Replacement Cost Blanket
Endorsement and, for the Irvine Networks, an Agreed Amount Endorsement.

16. 4. 7. An All Risk Property Damage policy covering
FirstWorld's or its Affiliate's switching facility in Anaheim, as well as an
additional switching facilities in an

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

*** CONFIDENTIAL TREATMENT REQUESTED

35
<PAGE>

amount not less than the full replacement cost of the switching facilities and
with an earthquake sublimit of not less than *** ( *** ) percent of the
replacement cost coverage amount.

16. 4. 8. Any combination of Primary, Umbrella and Excess
Liability policies which together provide total limits of at least *** Dollars
($ *** ) per occurrence and *** Dollars ($ *** ) in the aggregate.

16. 4. 9. As to any alterations, modifications,
reconstruction, improvements, or additions to the Conduit which involve a cost
in excess of $ *** (which amount shall be increased from time to time by the
same percentage increase as the percentage increase in the CPI from and after
the date of this Agreement) and which involve construction of a building
entrance link on real property owned by Irvine, completion and performance bonds
and guaranties assuring the lien free completion of all improvements being
installed or constructed when improvements are under construction, if required
by Irvine, provided, however, that if at any time during the Term FirstWorld
allows a lien to be recorded on account of work performed by or on behalf of
FirstWorld which is not released within thirty (30) days after recordation of
the same, then Irvine may thereafter require bonds and guaranties for all work
to be performed by FirstWorld in connection with this Agreement.

16. 5. FORM OF POLICIES. The insurance policies required to be
procured pursuant to paragraph 9.2 shall be written only with California
admitted insurance companies having a policyholder rating of A and a
financial rating of VII or better in the Best's Key Rating Guide and shall
contain the following provisions:

16. 5. Each policy shall contain a provision that the
coverages afforded thereby will not be canceled, reduced or materially changed
without at least thirty (30) days' prior written notice to Irvine.

16. 5. 2. The Commercial General Liability and Umbrella/Excess
Liability policies shall name Irvine as an additional insured with the following
clauses added:

(a) The insurance afforded to the additional
insureds is primary insurance. If any of the additional insureds has other
insurance which is applicable to the loss, such other insurance shall be excess
and non-contributory with this insurance as respects claims or liability arising
out of or resulting from the acts or omissions of the named insured, or of
others on behalf of the named insured.

(b) This insurance shall apply separately to each
insured except with respect to the limits of liability.

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

*** CONFIDENTIAL TREATMENT REQUESTED

36
<PAGE>

16. 6. INCREASE IN LIABILITY LIMITS. Irvine may from time to time
require that the limits of liability for any insurance policy to be maintained
under this Article 16 be increased, provided that no such increase shall cause
the limits of liability to exceed the greater of: (a) the limits of liability
required by FirstWorld's Lenders; or (b) the limits of liability set forth in
this Article 16 increased by the same percentage increase as the percentage
increase in the CPI from and after the date of this Agreement.

16. 7. RELEASE AND WAIVER OF SUBROGATION. Notwithstanding anything
to the contrary in this Agreement, the Parties release each other, and their
respective agents, employees and contractors, from any liability for damage to
the property of the waiving Party that arises out of or incident to any peril
covered by property insurance carried by the Parties or out of a peril of the
type to be covered by the property insurance required to be carried under the
terms of this Agreement, whether due to the negligence of Irvine or FirstWorld
or their respective agents, employees or contractors or any other cause. Each
Party shall cause each property insurance policy obtained by it to authorize the
foregoing waiver.

17.

REPRESENTATIONS AND WARRANTIES

17. 1. REPRESENTATIONS AND WARRANTIES OF FIRSTWORLD.

17. 1. 1. As of the date of this Agreement, FirstWorld is a
corporation duly organized and validly existing in good standing under the laws
of the State of California and has all necessary corporate power and authority
to carry on its business as presently conducted, to own or hold under lease its
properties and to enter into and perform its obligations under this Agreement.

17. 1. 2. The execution, delivery and performance by
FirstWorld of this Agreement has been duly authorized by all necessary action on
the part of FirstWorld, do not require any approval, except as has been
heretofore obtained, of the shareholders of FirstWorld or any consent of or
approval from any trustee, lessor or holder of any indebtedness or other
obligation of FirstWorld, except for such as have been duly obtained, and do not
contravene any Applicable Law, the articles or bylaws of FirstWorld or any
agreement, judgment, injunction, order, decree or other instrument binding upon
FirstWorld.

17. 1. 3. There are no actions, suits, proceedings or
investigations pending or, to the knowledge of FirstWorld, threatened against it
at law or in equity before any court or tribunal or which individually or in the
aggregate could result in any materially adverse effect on its business,
properties or assets or its condition, financial or otherwise, or in any
impairment of its ability to perform its obligations under this Agreement.
FirstWorld has no knowledge of a violation or default with respect to any order,
writ, injunction or any decree of any court or tribunal or any Governmental
Authority which may result in any such materially adverse effect or such
impairment.

37
<PAGE>

17. 1. 4. There are no pending agreements or active
negotiations for the sale of all or substantially all of the assets of, or stock
representing a direct controlling interest in FirstWorld or FWC, or any of their
respective subsidiary or affiliated entities.

17. 2. REPRESENTATIONS AND WARRANTIES OF IRVINE. Irvine is a
corporation duly organized and validly existing in good standing under the laws
of the State of Delaware and has all necessary power and authority to carry on
its business as presently conducted, to own or hold under lease its properties
and to enter into and perform its obligations under this Agreement.

17. 2. 1. The execution, delivery and performance by Irvine of
this Agreement have been duly authorized by all necessary action on the part of
Irvine, do not require any consent of or approval from any trustee, lessor or
holder of any indebtedness or other obligation of Irvine, except for such as
have been duly obtained, and do not contravene or constitute a default under any
Applicable Law, the Articles of Incorporation or By-Laws of Irvine or of any
agreement, judgment, injunction, order, decree or other instrument binding upon
Irvine.

17. 2. 2. There are no actions, suits, proceedings or
investigations pending or, to the knowledge of Irvine, threatened against it at
law or in equity before any court or tribunal which individually or in the
aggregate could result in any materially adverse effect on its business,
properties or assets or its condition, financial or otherwise, or in any
impairment of its ability to perform its obligations under this Agreement.
Irvine has no knowledge of a violation or default with respect to any order,
writ, injunction or any decree of any court or tribunal or any Governmental
Authority which may result in any such materially adverse effect or such
impairment.

17. 2. 3. Irvine currently owns good and marketable title to
the Existing Buildings, and will own good and marketable title to any Additional
Buildings at the time the same are added to this Agreement.

17. 2. 4. There is no existing or, to Irvine's knowledge,
pending or threatened litigation, suit, action or proceeding, including
condemnation proceedings, before any court or administrative agency against
Irvine or any Building that would, if adversely determined, prohibit FirstWorld
from installing the Equipment in the Equipment Space.

18.

PROTECTION OF CONFIDENTIAL INFORMATION

18. 1. DESIGNATION OF CONFIDENTIAL INFORMATION. Any Confidential
Information submitted to either Party by or on behalf of the other Party or its
Affiliates shall be labeled as "Proprietary" or "Confidential" by use of a
prominent legend, label or sticker, except that Pre-Authorized Confidential
Information need not be so labelled.

18. 2. OBLIGATIONS OF CONFIDENTIALITY. Each Party shall treat and
hold the Confidential Information in confidence and shall undertake the
following obligations with respect thereto:

38
<PAGE>

18. 2. 1. Each shall keep confidential all Confidential
Information disclosed to it, in accordance herewith, and to protect the
confidentiality thereof, in the same manner in which it protects the
confidentiality of similar information and data of its own (at all times
exercising at least a reasonable degree of care in the protection of
Confidential Information); provided, however, that neither shall have any
obligation with respect to the use or disclosure to others of any Confidential
Information that can be established to have: (a) been known publicly; (b) been
known generally in the industry before communication; (c) become known publicly,
without fault on the part of either Party; (d) been known otherwise before
communication; (e) been received without any obligation of confidentiality from
a source (other than a Party or its Affiliates) lawfully having possession of
such information; (f) been required to be disclosed by law or court order; (g)
been reasonably necessary to disclose in connection with the enforcement of a
Party's rights under this Agreement; (h) been reasonably necessary to disclose
in connection with a Financing, a Transfer, a borrowing by FWC or FirstWorld,
the sale of shares of FirstWorld or FWC, or any similar transaction, whether of
FirstWorld, FWC or any Affiliate of either entity; or (i) been reasonably
necessary to disclose in connection with any financing, sale of shares, transfer
of a substantial portion of the assets of, or any similar transaction of Irvine
or any of its Affiliates.

18. 2. 2. All Confidential Information which may be furnished
to a Party shall continue to be the property of the Party furnishing the same,
or the Affiliate submitting such Confidential Information on such Party's
behalf.

18. 2. 3. No rights or licenses, express or implied, are
hereby granted to any Confidential Information, including without limitation,
any patents, trademarks, service marks, trade names, copyrights or trade
secrets, as a result of or related to this Agreement.

19.

MARKS AND PUBLICITY

19. 1. EXCLUSIVE OWNERSHIP OF MARKS. Irvine acknowledges and
recognizes the exclusive rights of FWC, FirstWorld and their Affiliates to the
"FirstWorld" name and all other service marks, trademarks, names, copyrights,
logos, registrations and patents used exclusively (individually or collectively)
by FWC, FirstWorld, or their Affiliates in connection with the "FirstWorld" name
and or the conduct of their business, and not constituting generic or
descriptive terms, marks or logos used within the telecommunications industry
(collectively, the "FirstWorld Marks"). FirstWorld acknowledges and recognizes
the exclusive rights of Irvine, Irvine Community Development Company and their
Affiliates to the "Irvine Company" and "Spectrum" names, other project names
that may be designated by them for any Additional Area and all other service
marks, trademarks, names, copyrights, logos, registrations and patents used
exclusively by Irvine in connection with its real estate development and
investment activities and not constituting generic or descriptive terms, marks
or logos used within the real estate industry (collectively, the "Irvine
Marks"). Each hereby disclaims any right, title or interest in or to any of the
others Marks by operation of this Agreement. Each shall have the sole right and
(to the extent they determine appropriate) responsibility to institute and
prosecute all disputes with third parties concerning use of their respective
Marks.

39
<PAGE>

19. 2. REFERENCES TO MARKS. Each Party agrees not to use or
directly or indirectly refer to any of the other Party's Marks in any way or for
any purpose without the other Party's prior written consent, which it may
withhold for any reason or no reason. Irvine shall not use the words
"SpectraNet" or "FirstWorld" or any other FirstWorld Mark, or any combination or
variation of any of them, in the name of any partnership, corporation or other
entity. FirstWorld shall not use the words "Irvine" or "Spectrum" or any other
Irvine Mark, or any combination or variation of any of them, in the name of any
partnership, corporation or other entity.

19. 3. EFFECT OF TERMINATION. Each Party hereby acknowledges and
agrees that in the event of any termination or cancellation of this Agreement:
(a) neither Party or their respective Affiliates shall be under any obligation,
express or implied, to issue to the other a license (or commitment to issue a
license) permitting use of the other's names or Marks; and (b) neither Party or
their Affiliates shall be permitted to use of the other's Marks in connection
with the operation of any Network.

19. 4. PUBLICITY. Irvine shall notify FirstWorld orally or in
writing, of any press release, announcement, advertisement or other public
communication related to any Network. FirstWorld shall notify Irvine, orally or
in writing, of any press release, announcement, advertisement or other public
communication related to FirstWorld's Networks providing service to Irvine, the
Spectrum or any Additional Area.

20.

ARBITRATION

40
<PAGE>

21.

NO BROKER

22.

WAIVERS

23.

UCC FILING

Upon the request of FirstWorld, Irvine agrees to execute and to allow
FirstWorld to file with the Secretary of State at its expense a UCC statement in
form reasonably satisfactory to Irvine affirming that any Equipment installed by
FirstWorld in any Building is owned by FirstWorld and shall not be deemed to
have become a part of the Building in which it is installed, subject to the
rights of Irvine in and to any Equipment pursuant to the terms and provisions of
this Agreement. Upon the request of FirstWorld from time to time, Irvine shall
execute and deliver and allow FirstWorld to file with the Secretary of State at
its expense additional UCC statements as additional Buildings are added to this
Agreement.

24.

ESTOPPEL CERTIFICATES

41
<PAGE>

setting forth with reasonable specificity any alleged exceptions to the
statements requested to be contained in such Estoppel Certificate, then the
Certifying Party shall be deemed for all purposes, whether or not this Agreement
has been terminated or is otherwise in full force and effect, to have executed
and delivered to the third party and the Requesting Party an Estoppel
Certificate, dated as of the effective date of the Estoppel Certificate Request,
certifying that this Agreement is in full force and effect, that there are no
amendments or modifications hereof and that the Requesting Party is not in
default under this Agreement.

25.

MISCELLANEOUS PROVISIONS

25. 1. NOTICES. Any notice, request, demand, consent, approval or
other communication required or permitted hereunder or by law shall be given in
writing, addressed as follows:

If to Irvine: The Irvine Company
550 Newport Center Drive
Newport Beach, CA 92660
Attn: Vice President, Industrial Operations

With a Copy to: The Irvine Company
550 Newport Center Drive
Newport Beach, CA 92660
Attn: General Counsel - Office

If to FirstWorld: FirstWorld Orange Coast
9333 Genessee Avenue, Suite 200
San Diego, California 92121
Attn: G. Bradford Saunders

With a Copy to: FirstWorld Communications
9333 Genessee Avenue, Suite 200
San Diego, California 92121
Attn: General Counsel

42
<PAGE>

simultaneously sent by another method permitted under this Agreement. Except as
otherwise expressly provided herein, notices shall be deemed fully delivered and
received at the time of actual receipt.

25. 2. FURTHER ASSURANCES. Each Party shall fully support and
cooperate with the other Party in giving effect to the purpose and intent of
this Agreement, including, without limitation, in a Party's efforts to obtain
from any Governmental Authority or any other Person any permit, entitlement,
approval, authorization or other right necessary or convenient in connection
with such Party's activities or operations, provided that the cooperation
required under this Section 25.2 shall be at no expense to the Party requested
to provide its cooperation. Without limiting the generality of the foregoing,
each Party agrees to execute and deliver such further documents and perform such
further acts as may be reasonably necessary to achieve the intent of the Parties
as set forth in this Agreement.

25. 3. PERFORMANCE UNDER PROTEST. If at any time a dispute shall
arise as to the amount of any payment to be made by a Party to the other under
this Agreement, then the Party against whom the obligation to pay is asserted
shall pay the entire amount billed, but shall have the right to make payment
"under protest." The Party making the payment shall continue to have the right
to seek recovery of such sum. To the extent that it shall be determined that
the Party making the payment "under protest" was not required to make such
payment, such Party shall be entitled to recover such sum or so much of such sum
as such Party was not legally required to pay pursuant to this Agreement.

25. 4. NO THIRD PARTY BENEFICIARIES. Except as to the permitted
successors and assigns of each Party, nothing in this Agreement shall be deemed
to confer upon any Person (other than Irvine, FirstWorld or Lenders) any right
to insist upon, or to enforce against Irvine or FirstWorld, the performance or
observance by either Party of its obligations under this Agreement.

25. 5. INTERPRETATION. No inference in favor of or against any
Party shall be drawn from the fact that such Party has drafted any portion of
this Agreement. The Parties have both participated substantially in the
negotiation, drafting and revision of this Agreement with representation by
counsel and such other advisors as they have deemed appropriate. The words
"include" and "including" shall be construed to be followed by the words
"without limitation".

25. 6. DELIVERY OF DRAFTS. Neither Irvine nor FirstWorld shall be
bound by this Agreement unless and until each Party shall have executed at least
one counterpart of this Agreement and delivered such executed counterpart to the
other Party. The submission of draft(s) of this Agreement or comment(s) on such
drafts shall not bind either Party in any way and such draft(s) and comment(s)
shall not be considered in interpreting this Agreement.

25. 7. HEADINGS. Article and section headings have been inserted
in this Agreement as a matter of convenience and for reference only. Such
section headings are not a part of this Agreement and shall not be used in the
interpretation of any provision of this Agreement.

43
<PAGE>

25. 8. CUMULATIVE REMEDIES. Subject to the express limitations set
forth in this Agreement, the remedies to which either Party may resort under
this Agreement are cumulative and are not intended to be exclusive of any other
remedies to which such Party may lawfully be entitled in the event of any breach
or threatened breach by the other Party of any provision of this Agreement.

25. 9. ENTIRE AGREEMENT. This Agreement, including all exhibits
and appendices hereto, together with the Conduit Lease, constitutes the entire
agreement between the Parties hereto pertaining to the subject matter thereof,
and the final, complete and exclusive expression of the terms and conditions
thereof. All prior agreements, representations, negotiations and understandings
of the Parties hereto, oral or written, express or implied, are hereby
superseded and merged herein.

25. 10. AMENDMENTS. No addition to or modification of any provision
contained in this Agreement shall be effective unless fully set forth in a
writing signed by Irvine and FirstWorld.

25. 11. PARTIAL INVALIDITY. If any term or provision of this
Agreement or the application of such term or provision to any Party or
circumstance shall to any extent be invalid or unenforceable, then the remainder
of this Agreement, or the application of such term or provision to Persons or
circumstances other than those as to which it is invalid or unenforceable, shall
not be affected by such invalidity or unenforceability, and each remaining term
and provision of this Agreement shall be valid and enforceable to the fullest
extent permitted by Applicable Law.

25. 12. SUCCESSORS. This Agreement shall bind and benefit Irvine
and FirstWorld and their successors and assigns, but the foregoing shall not
limit or supersede any transfer restrictions contained in this Agreement.

25. 13. GOVERNING LAW. This Agreement and its interpretation and
performance shall be governed, construed and regulated by the Applicable Law of
the State of California without regard to principles of conflict of Applicable
Law.

25. 14. COUNTERPARTS. This Agreement may be executed in one or more
duplicate counterparts and when signed by all of the Parties listed below shall
constitute a single binding agreement.

25. 15. TIME PERIODS. Whenever this Agreement requires either Party
to perform any action within a specified period, or requires that a particular
event occur within a specified period, if the last day of such period is not a
Business Day, then the period shall be deemed extended through the close of
business on the first Business Day following such period as initially specified.
This paragraph shall in no event delay or defer the effective date of any
License Fee adjustment or the commencement of any period with respect to which
interest on a payment shall accrue or the date for payment of any License Fee.

25. 16. WAIVERS. The consent by one Party to any act by another
Party shall not be deemed to imply consent, or waiver of the necessity of
obtaining such consent, for the

44
<PAGE>

same or any similar acts in the future. No waiver or consent shall be implied
from silence or from any failure of a Party to act, except as otherwise
specified in this Agreement.

25. 17. NEGATION OF PARTNERSHIP. The covenants, obligations and
liabilities of the Parties are intended to be several and not joint or
collective, and nothing herein contained shall ever be construed to create an
association, joint venture, trust or partnership, or to impose a trust or
partnership covenant, obligation or liability on or with regard to the Parties.
Each Party shall be individually responsible for its own covenants, obligations
and liabilities as herein provided. No Party shall be under the control of or
shall be deemed to control the other Party. No Party shall be the agent of or
have a right or power to bind the other Party without its express written
consent, except as expressly provided in this Agreement.

25. 18. ATTORNEYS' FEES. Each Party shall bear its own attorney's
fees incurred in relation to the negotiation and execution of this Agreement. In
the event of any action instituted between the Parties in connection with this
Agreement, the prevailing Party shall be entitled to recover from the losing
Party the prevailing Party's costs and expenses, including reasonable attorneys'
fees. The prevailing Party for the purpose of this paragraph shall be
determined by the trier of the facts.

25. 19. RELATIONSHIPS. Irvine and FirstWorld acknowledge and agree
that the relationship between them is solely that of independent contractors,
and nothing herein shall be construed to constitute the Parties as
employer/employee, partners, joint venturers, co-owners, or otherwise as
participants in a joint or common undertaking. Neither Party, nor its
employees, agents or representatives shall have any right, power or authority to
act or create any obligation, express or implied, on behalf of the other.

25. 20. NONDEDICATION OF FACILITIES. The Parties do not intend to
dedicate and nothing in this Agreement shall be construed as constituting a
dedication by FirstWorld of its properties or facilities, or any part thereof,
to Irvine or to any governmental entity or agency or to the customers of Irvine
or any third-party vendor of services delivered by the Networks, except as may
otherwise be expressly provided in this Agreement or the Conduit Lease with
regard to surrender of the Cable at the expiration of the term of the Conduit
Lease.

25. 21. FORCE MAJEURE. No Party shall be considered to be in
default in the performance of any of its obligations under this Agreement (other
than obligations of said Party to pay any monetary sums due hereunder) when a
failure of such performance shall be due to an Unavoidable Delay. Nothing
contained herein shall be construed so as to require any Party to settle any
strike or labor dispute in which it may be involved. Any Party rendered unable
to fulfill any of its obligations under this Agreement by reason of an
Unavoidable Delay shall give prompt written notice of such fact to the other
Party and shall exercise reasonable diligence to remove such inability with all
reasonable dispatch. If an Unavoidable Delay shall have occurred, the Parties
shall consult with one another as soon as practicable concerning the effect of
such delay upon their performance hereunder. In the event that any Party's
activity hereunder is delayed, curtailed or prevented by any Unavoidable Delay,
the time for carrying out the activity thereby affected shall be extended for a
period equal to the total number of days during which such causes

45
<PAGE>

or their effects were operative, and for such additional time, if any, as shall
be necessary to make good the time lost as a result of any Unavoidable Delay.

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
day and year first above written.

FIRSTWORLD ORANGE COAST,
a California corporation

By: /s/ Robert E. Randall
-------------------------------------
Name: Robert E. Randall
Title: Executive Vice President & Chief
Operating Officer

By: /s/ G. Bradford Saunders
-------------------------------------
Name: G. Bradford Saunders
Title: Senior Vice President

THE IRVINE COMPANY,
a Delaware corporation

By: /s/ Richard G. Sim
-------------------------------------
Richard G. Sim,
Executive Vice President

By: /s/ Clarence W. Barker
-------------------------------------
Clarence W. Barker, President
of Irvine Industrial Company, a
division of The Irvine Company

46
<PAGE>

Appendix 1

GLOSSARY OF DEFINED TERMS

<PAGE>

Appendix 1

GLOSSARY OF DEFINED TERMS
(LICENSE AGREEMENT)

"Addition Memorandum" means a memorandum in the form of APPENDIX 5
adding space within Additional Available Spectrum Conduit or Available Other
Conduit to the Leased Premises under the Conduit Lease, or Additional Buildings
to the License Agreement.

"Additional Areas" means other areas which Irvine may develop within
the cities of Irvine, Newport Beach and Tustin and within certain unincorporated
areas of the County of Orange.

"Additional License Fee Base" shall have the meaning set forth in
Section 6.1 of the License Agreement.

"Additional Networks" means any Networks established by FirstWorld to
service any Additional Areas.

"Additional Spectrum" means additional areas which Irvine intends to
develop within or as part of the Irvine Spectrum as more particularly shown on
the map attached to the License Agreement as APPENDIX 3 or located adjacent to
the Existing Spectrum.

"Additional Spectrum Buildings" means any additional commercial,
industrial and retail buildings which Irvine develops and owns within the
Additional Spectrum.

"Adjusted Gross Combined Revenue" means Adjusted Gross Revenue plus,
for the relevant period, the remainder, if any, of the Other Building Gross
Revenues for the relevant

2
<PAGE>

period less the sum of the following for the same period, to the extent derived
from Customers occupying the applicable Additional Other Buildings or Users
providing services through FirstWorld or one or more of its Affiliates to the
applicable Additional Other Buildings: (i) Service Provider Payments; and (ii)
FirstWorld Consulting Revenues.

"Affiliated Lender" means any Lender which is also an Affiliate of
FirstWorld.

"Agreement" means this License Agreement.

"Available Conduit" means the Available Spectrum Conduit together with
the Available Other Conduit.

"Available Spectrum Conduit" means the Existing Available Spectrum
Conduit together with the Additional Available Spectrum Conduit to the extent
constructed from time to time.

"Basic Percentage Rent" shall have the meaning set forth in Section
4.2 of the Conduit Lease.

"Bonus Percentage Rent" shall have the meaning set forth in Section
4.3 of the Conduit Lease.

3
<PAGE>

"Buildings" means the Existing Spectrum Buildings together with any
Additional Buildings to the extent added to the License Agreement pursuant to
the terms thereof.

"Business Day" means any day which is not a Saturday, a Sunday or a
day on which national banks are obligated by law, regulation or executive order
to be closed.

"Certifying Party" shall have the meaning set forth in Article 24 of
this Agreement.

"Commencement Date" is defined in Article 3 of this Agreement.

"Conduit" means *** tubes being a portion of the Available Conduit
together with the pull boxes serving such tubes within which FirstWorld utilizes
space, and together with all additional conduit which may be installed by
FirstWorld within the Spectrum and within any Additional Areas (including
building entrance conduit systems), and any alterations, repairs, modifications
and improvements of any of the same, provided, however, that for those portions
of the Available Conduit which include more than *** tube, the Conduit shall
consist of: (a) where the Available Conduit includes *** tubes, *** tube and ***
tube and (b) wherever the Available Conduit includes *** tubes, *** tubes.

"Conduit Lease" means that certain Agreement For Lease of
Telecommunications Conduit made and entered into by and between Irvine and
FirstWorld and dated as of March 5, 1998.

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

*** CONFIDENTIAL TREATMENT REQUESTED

4
<PAGE>

"Estoppel Certificate Request" shall have the meaning set forth in
Article 24 of this Agreement.

"Event of Default" shall have the meaning set forth in Section 13.1 of
this Agreement.

"Existing Spectrum" means certain developed areas in the area commonly
referred to as the Irvine Spectrum and more particularly shown on the map
attached hereto as APPENDIX 2.

"Existing Spectrum Buildings" means the commercial, industrial and
retail buildings which are owned by Irvine within the Existing Spectrum and
which are listed on APPENDIX 3 attached to the License Agreement.

"Fair Market License Fee" shall have the meaning set forth in Section
6.1.4. of the License Agreement.

"Financing" means any mortgage financing, project financing,
refinancing or borrowing, or any sale and leaseback transaction in which
FirstWorld has the right to repurchase

5
<PAGE>

"FirstWorld" means FirstWorld Orange Coast, a California corporation.

"FirstWorld Marks" shall have the meaning set forth in Section 19.1 of
the License Agreement.

"Fiscal Year" means the fiscal year of FirstWorld, ending on September
30, as the same may be changed from time to time.

"FWC" means FirstWorld Communications, Inc., a California corporation.

"Gross Revenues" means, for any period, all revenues received by
FirstWorld or any of its Affiliates, assignees or sublessees with respect to the
operation of the Irvine Networks during such period that are attributable to the
following derived from Customers occupying buildings within the Spectrum and any
Additional Areas, or from Users providing services through the Irvine Networks
to any Person in the Spectrum or any Additional Areas: (a) fees for access
rights and other services sold by FirstWorld to such Customers, (b) *** , (c)
*** , (d) the lease or re-sale of lines or circuit paths within the Irvine
Networks to Users to access customers of said Users, and (e) the lease to
Customers of Customer premises equipment which is not generally available and
which is required by FirstWorld as a condition of service.

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

*** CONFIDENTIAL TREATMENT REQUESTED

6
<PAGE>

"Initial Installation Date" shall have the meaning set forth in
Section 2.10.1 of the Conduit Lease.

"Irvine" means The Irvine Company, a Delaware corporation.

"Irvine Marks" shall have the meaning set forth in Section 19.1 of the
License Agreement.

"Irvine Networks" means the Spectrum Network and any Additional
Networks.

"Irvine's Cure" shall have the meaning set forth in Section 12.4 of
this Agreement.

"Irvine's Cure Rights" shall have the meaning set forth in Section
12.4 of this Agreement.

"Leased Premises" means the space within the tubes of the Conduit
together with the non-exclusive right to use undivided space within the pull
boxes serving such tubes.

"Lender's Cure" shall have the meaning set forth in Section 11.4 of
this Agreement.

7
<PAGE>

"Lender's Cure Rights" shall have the meaning set forth in Section
11.4 of this Agreement.

"License Agreement" means that certain Telecommunications System
License Agreement dated as of March 5, 1998, by and between Irvine and
FirstWorld.

"License Fee" shall have the meaning set forth in Section 6.1 of the
License Agreement.

"Market Adjustment Date" shall have the meaning set forth in Section
6.1.4 of the License Agreement.

"Marks" means the FirstWorld Marks and the Irvine Marks.

"Memorandum of Lease" means a recordable memorandum of the Conduit
Lease in the form of APPENDIX 7 attached to the Conduit Lease to be executed
between the parties.

"Off Net" means that FirstWorld is providing service to the end user
over a third party's transport system.

"On Net" means that FirstWorld's Cable is connected to the applicable
building, and FirstWorld is providing service to the end user over such Cable.

"Other Building Gross Revenue" means, for any period, all revenues
received by FirstWorld or any of its Affiliates, assignees, or sublessees with
respect to services provided during such period that are attributable to the
following derived from Customers occupying Additional Other Buildings or Users
providing services to Persons occupying Additional Other Buildings: (a) fees for
access rights and other services sold by FirstWorld to such Customers, (b) *** ,
(c) *** , (d) the lease or re-sale of lines or circuit paths to Users to access
customers of said Users in such Additional Other Buildings, and (e) the lease to
Customers of Customer premises equipment which is not generally available and
which is required by FirstWorld as a condition of service.

"Party" means Irvine or FirstWorld as a party to this Agreement.

"Payment Date" means each May 15, August 15, November 15 and February
15, or the next succeeding Business Day if such date is not a Business Day.

"Permitted Assignee" shall have the meaning set forth in Section 11.1
of this Agreement.

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

*** CONFIDENTIAL TREATMENT REQUESTED

8
<PAGE>

"Phasing Plan" means the plans showing the phasing for installation of
the Irvine Networks or portions thereof. The initial Phasing Plan for the
Network to be installed in the Existing Spectrum is attached to this Agreement
as APPENDIX 6. Additional Phasing Plans will be prepared for any Additional
Spectrum areas and for any Additional Areas, in accordance with the terms and
provisions of the Conduit Lease.

"Plans" shall have the meaning set forth in Section 8.1 of this
Agreement.

"Rent" means the sum of the Basic Percentage Rent and the Bonus
Percentage Rent.

"Requesting Party" shall have the meaning set forth in Article 24 of
this Agreement.

"Service Provider Payments" means all sums collected by FirstWorld or
any of its Affiliates, assignees or sublessees, on behalf of any Users or other
service providers.

"Serviced Buildings" means all buildings and other facilities within
both the Spectrum and such Additional Areas as may be incorporated into this
Agreement.

"Spectrum" means the Existing Spectrum together with the Additional
Spectrum to the extent developed from time to time.

"Spectrum Service Area" means the Existing Spectrum together with the
Additional Spectrum to the extent developed and added to the Conduit Lease from
time to time.

"Term" shall mean the period commencing on the Commencement Date and
continuing until December 31, 2027.

"Third Party Building Access Payments" means payments for access to
buildings for which FirstWorld does not have a right of entry pursuant to this
Agreement.

"Transfer" shall have the meaning set forth in Section 14.1 of this
Agreement.

9
<PAGE>

"Unavoidable Delay" means any cause beyond the reasonable control of
the party affected, including, without limitation, the following:

(a) Failures of or threats of failure of facilities, including
power failures and the failure of any component of a Network;

(b) Floods, earthquakes, tornadoes, storms, fires, lightning,
epidemics or other casualties;

(d) Labor disputes, labor or material shortages (including the
inability to obtain Equipment necessary to provide service) or acts of sabotage;

(e) Restraint by court order or Governmental Authority;

(g) The need to condemn or acquire property prior to performing
any act.

"Underground Agencies" means one or more underground utility
monitoring companies.

10
<PAGE>

APPENDIX 2

DEPICTION OF EXISTING SPECTRUM

THIS APPENDIX CONTAINS A MAP OF THE EXISTING SPECTRUM

(AS DEFINED)

<PAGE>

ADDITIONAL SPECTRUM

THIS APPENDIX CONTAINS A MAP OF THE ADDITIONAL SPECTRUM

(AS DEFINED)

<PAGE>

APPENDIX 4

EXISTING SPECTRUM BUILDINGS

<PAGE>

EXHIBIT 10.19

- ----------------------------------------------------------------------
INVESTMENT PROPERTIES GROUP
LIST OF SPECTRUM PROPERTIES
FOR FISCAL YEAR 96/97
- ----------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------
Product # #
Project Name/Bldg Address City Type Bldgs Stories Sq Ft
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>

IRVINE/ODG PHASE I (JV)
9351 Jeronimo Road IRV ISWH 1 2 103,602
9400-9420 Jeronimo Road IRV ISMT 1 1&2 168,314
9500 Jeronimo Road IRV ISMT 1 1 136,648
9560 Jeronimo Road IRV ISWH 1 1 49,043
457,607

ALTON/ADA (BLDG 1,2,3) (JV)
2 Ada Street (Bldg 3) IRV ISTS 1 2 51,431
31 Technology (Bldg 1) IRV ISFT 1 2 58,221
33 Technology (Bldg 2) IRV ISFT 1 2 75,766
185,418

9801 MUIRLANDS (ICL) (JV)
9801 Muirlands IRV ISMT 1 2 151,791

BAKE TECHNOLOGY PARK I
3 Parker IRV ISMT 1 2 46,394
9 Parker IRV ISFT 1 2 59,585
9775 Toledo IRV ISMT 1 2 96,398
9975 Toledo IRV ISMT 1 2 66,950
269,327

IRVINE/ODG BUSINESS PARK
9272 Jeronimo Road IRV ISMU 1 1 62,795
9292 Jeronimo Road IRV ISMT 1 2 51,485
9342 Jeronimo Road IRV ISMT 1 2 52,133
166,413

BAKE MINIWAREHOUSE
15401 Bake Parkway IRV ISOT 1 99,000

FAIRBANKS IND'L PARK
64 Fairbanks IRV ISWH 1 1 47,786
68 Fairbanks IRV ISWH 1 1 73,610
72 Fairbanks IRV ISWH 1 1 65,902
76 Fairbanks IRV ISWH 1 1 107,024
294,322

</TABLE>

SD_DOCS\94594.1 1

<PAGE>

TECHNOLOGY PLAZA I (BLDG 8) (JV)
18 Technology Drive IRV ISMU 3 1&2 124,004

BARRANCA I (BLDG IO) (JV)
15345 Barranca Parkway IRV ISMT 1 2 81,450

TRIPOINTE
30 Fairbanks IRV ISMU 1 1 24,564
13900 Alton Parkway IRV ISMU 1 1 20,989
13844 Alton Parkway IRV ISMU 1 1 20,451
13766 Alton Parkway IRV ISMU 1 1 18,631
13700 Alton Parkway IRV ISMU 1 1 22,824
20 Fairbanks IRV ISTS 1 1 45,098
152,557
PARKER
29 Parker IRV ISFT 1 2 58,178
35 Parker IRV ISMT 1 2 23,632
39 Parker IRV ISMT 1 2 18,828
45 Parker IRV ISMT 1 2 39,579
140,217

JENNER BUSINESS PARK I
2 Jenner IRV ISFT 1 1 32,804
3 Jenner IRV ISFT 1 1 33,075
4 Jenner IRV ISFT 1 1 37,313
5 Jenner IRV ISFT 1 1 41,871
145,063

JERONIMO - 5 & 6
9600 Jeronimo Road IRV ISWH 1 2 32,518
9650 Jeronimo Road IRV ISMT 1 2 140,630
9700 Jeronimo Road IRV ISWH 1 2 40,004
213,152

SANDCANYON RV (BONNER)
1 Burroughs IRV ISOT 0 0

</TABLE>

SD_DOCS\94594.1 2

<PAGE>

BAKE TECHNOLOGY PARK II
2 Cromwell IRV ISMT 1 2 49,503
4 Cromwell IRV ISMT 1 2 55,703
6 Cromwell IRV ISMT 1 2 42,915
148,121

FREEWAY TECHNOLOGY PARK I
201 Technology Drive IRV ISFT 1 2 28,123
205 Technology Drive IRV ISFT 1 2 22,338
209 Technology Drive IRV ISFT 1 2 30,884
213 Technology Drive IRV ISFT 1 2 26,555
217 Technology Drive IRV ISFT 1 2 52,386
160,286

19 & 21 TECHNOLOGY
19 Technology Drive IRV ISFT 1 2 63,467
21 Technology Drive IRV ISFT 1 2 66,140
129,607

LAKEVIEW BUSINESS CENTER II
100 Technology Drive IRV ISTS 1 2 31,603
15350 Barranca Parkway IRV ISMT 1 2 45,300
15360 Barranca Parkway IRV ISTS 1 2 38,178
15370 Barranca Parkway IRV ISFT 1 2 47,039
80 Technology Drive IRV ISMT 1 2 67,940
230,060

TECHNOLOGY PLAZA II (BLDG 9)
16 Technology Drive IRV ISMU 4 1&2 120,123

BARRANCA II (BLDG 11) (JV)
15355 Barranca Parkway IRV ISFT 1 2 51,176

JENNER BUSINESS PARK II
1 Jenner IRV ISTS 1 2 30,636
6 Jenner IRV ISTS 1 2 30,243
60,879

</TABLE>

<PAGE>

JENNER BUSINESS PARK III
10 Pasteur IRV ISFT 1 1 13,179
8 Pasteur IRV ISFT 1 1 32,745
45,924

ALTON/TECHNOLOGY (BLDG 6&7) (JV)
15326 Alton Parkway IRV ISTS 1 2 31,699
26 Technology Drive IRV ISTS 1 2 25,000
56,699

CORPORATE BUSINESS CTR I
175 Technology Drive IRV ISFT 1 2 39,985
173 Technology Drive IRV ISFT 1 2 62,034
102,019

CORPORATE BUSINESS CTR II
167 Technology Dr (bldg 3) IRV ISFT 1 32,580
165 Technology Dr (bldg 4) ISFT 1 43,920
163 Technology Dr (bldg 5) ISFT 1 43,920
120,420

ALCON
15800 Alton Parkway IRV ISMT 1 2 189,199

140 & 142 TECHNOLOGY (PCLS 6&7)
140 Technology Drive IRV ISMT 1 1 37,550
142 Technology Drive IRV ISMT 1 1 37,927
75,477

FREEWAY TECHNOLOGY PARK II
181 Technology Drive IRV ISFT 1 1 36,830
185 Technology Drive IRV ISFT 1 1 27,700
189 Technology Drive IRV ISFT 1 2 44,937
195 Technology Drive IRV ISFT 1 2 47,654
199 Technology Drive IRV ISFT 1 1 27,550
184,671

</TABLE>

SD_DOCS\94594.1 4

<PAGE>

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Product # #
Project Name/Bldg Address City Type Bldgs Stories Sq Ft
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>

LAKEVIEW BUSINESS CENTER I
15320 Barranca Parkway IRV ISMT 1 2 48,142
15330 Barranca Parkway IRV ISMT 1 2 37,751
15340 Barranca Parkway IRV ISMT 1 2 20,271
50 Technology Drive IRV ISFT 1 2 55,872
56 Technology Drive IRV ISFT 1 2 71,054
60 Technology Drive IRV ISMT 1 2 21,015
254,105

9601 JERONIMO
9601 Jeronimo IRV ISFT 1 50,210

25-29 TECHNOLOGY (18-22)
25A Technology Drive IRV ISTS 1 2 28,640
25B Technology Drive IRV ISTS 1 2 33,003
27 Technology Drive IRV ISTS 1 2 45,362
29A Technology Drive IRV ISTS 1 2 32,847
29B Technology Drive IRV ISTS 1 2 28,670
168,522

ONE TECHNOLOGY PARK I
1 A Technology Drive IRV ISTS 1 2 23,252
1 B Technology Drive IRV ISMU 1 1 19,226
1 C Technology Drive IRV ISMU 1 1 21,913
1 D Technology Drive IRV ISMU 1 1 8,005
1 E Technology Drive IRV ISMU 1 1 8,005
1 F Technology Drive IRV ISMU 1 1 19,226
1 G Technology Drive IRV ISTS 1 2 23,252
1 H Technology Drive IRV ISTS 1 2 23,252
1 I Technology Drive IRV ISTS 1 2 23,252
1 J Technology Drive IRV ISTS 1 2 23,252
192,635

3 MORGAN
3 Morgan IRV ISFT 1 41,402

7 MORGAN
7 Morgan IRV ISFT 1 39,723

</TABLE>

SD_DOCS\94594.1 5

<PAGE>

152 TECHNOLOGY
152 Technology IRV ISMT 1 29,192

IRVINE ENTERTAINMENT CENTER (PHASE 1)
31 Fortuna Drive IRV RSOT 229,898

AT&T
8001 Irvine Center Drive IRV OSHR 1 14 306,444

WESTERN DIGITAL
8105 Irvine Center Drive IRV OSHR 1 14 357,922

TOTAL SPECTRUM AREA: 107 5,825,035
=== =========

PRODUCT TYPE CODES:

1ST CHARACTER: 2ND CHARACTER: 3RD CHARACTER:

I = Industrial N = Newport MT = Mid Tech
O = Office A = Airport FT = Flex Tech
R = Retail S = Spectrum TS = Two Story
D = San Diego MU = Multi
L = Los Angeles WH = Warehouse
B = Sunnyvale (Bay area) OT = Other
O = Other

</TABLE>

<PAGE>

APPENDIX 5

ADDITION MEMORANDUM

<PAGE>

ADDITION MEMORANDUM NO.
(LICENSE AGREEMENT)

THIS ADDITION MEMORANDUM is dated as of _______________, _____________, and
made by and between THE IRVINE COMPANY, a Delaware corporation ("Irvine"), and
FIRSTWORLD ORANGE COAST, a California corporation ("FirstWorld").

A. Prior to the date hereof, Irvine and FirstWorld have entered into that
certain TELECOMMUNICATIONS SYSTEM LICENSE AGREEMENT dated as of ___________,
1998, (the "License Agreement") providing for, among other things, FirstWorld to
have a License to construct, install, maintain, operate, use, repair, replace,
augment and remove, Cable and associated Equipment in certain buildings as more
particularly set forth in the License Agreement.

B. Irvine now desires to grant a License to an Additional Building(s) in
accordance with the terms, provisions and conditions of the License Agreement.

NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereto agree as
follows:

1. DEFINITIONS. Capitalized terms used in this Addition Memorandum and
not otherwise defined herein shall have the meaning given to them in the License
Agreement.

2. ADDITIONAL BUILDING. Pursuant to the provisions of Article 2 of the
License Agreement, effective as of _____________, _________, (the "Effective
Date") the Additional Building(s) identified in Exhibit A attached hereto and
incorporated herein by this reference are added to the License Agreement, which
Additional Building(s) contain the gross square footage shown on Exhibit A.

3. ADJUSTMENT TO LICENSE FEE. As a result of the addition of the
Additional Building(s) shown on Exhibit A, the License Fee is hereby increased
as of the Effective Date by the sum of $________, which increase is equal to the
sum of the gross square footage of the Additional Building(s) identified on
Exhibit A of ______________ [sq. ft.] times the Additional License Fee Base of
$_____ per gross square foot (which Additional License Fee Base has been
adjusted pursuant to Section 6.1.3 of the License Agreement for the increase in
the CPI for the relevant period). As a result of such increase, effective as of
the Effective Date, the current quarterly License Fee shall be $____________.

Appendix 5
Page 1 of 2
<PAGE>

4. FORCE AND EFFECT. Except for the addition of the Additional
Building(s) and the adjustment of the License Fee in accordance with the
provisions of this Addition Memorandum, the License Agreement shall remain
unmodified and in full force and effect.

IN WITNESS WHEREOF, the Parties have executed this Addition Memorandum as
of the day and year first above written.

FIRSTWORLD ORANGE COAST,
a California corporation

By:
---------------------------
Name:
-------------------------
Title:
------------------------

THE IRVINE COMPANY,
a Delaware corporation

By:
---------------------------
Name:
-------------------------
Title:
------------------------

Appendix 5
Page 2 of 2

<PAGE>

APPENDIX 6

PHASING PLAN

THIS APPENDIX CONTAINS A COLOR CODED MAP OF THE AREA IN WHICH
THE COMPANY'S FACILITIES ARE TO BE CONSTRUCTED AND INDICATES
WHICH AREAS MUST BE COMPLETED AT VARIOUS TIMES

<PAGE>

APPENDIX 7

WAIVER AND RELEASE

<PAGE>

WAIVER AND RELEASE

The undersigned ("Tenant"), as a tenant in the building ("Building")
located at ________________________, desires to utilize telecommunications
services to be provided by _________________ ("PROVIDER"). Tenant acknowledges
that the services of Provider will be furnished over a cable distribution system
installed in the Building by Provider, and that in the future Provider may be
required to make use of a building riser and distribution cabling system should
the Building owner/Tenant's landlord ("Landlord") so elect. The agreement
between Tenant and Provider limits Provider's liability to Tenant and its
successors and assigns in various respects. In consideration of Landlord's
permitting Provider to provide services to Tenant, Tenant executes this
instrument to acknowledge that in no event shall Landlord, its mortgagees and
property manager, and each of their respective partners, directors, officers,
employees and agents ("RELEASED PARTIES") be liable to Tenant for direct,
indirect, consequential, special, incidental, actual, punitive or any other
damages, or for any lost profits of any kind or nature whatsoever, arising out
of mistakes, accidents, errors, omissions, interruptions or defects in
transmission, or delays, including those which may be caused by regulatory or
judicial authorities, in connection with the services and/or equipment to be
provided by Provider, or the obligations of Provider pursuant to its agreement
with Tenant, REGARDLESS OF WHETHER SAME IS CAUSED BY THE NEGLIGENCE OR SOLE
NEGLIGENCE OF A RELEASED PARTY, and agrees that Provider is the only Party
against which it will seek any form of damages or relief in any claim or action
related to the services contemplated to be provided by Provider. Tenant waives
and releases all rights and remedies against the Released Parties that are
inconsistent with the foregoing. It is understood that each Released Party
shall rely upon, and is an intended third party beneficiary of, this instrument.

This agreement shall be binding upon Tenant and its successors and assigns
and shall be governed by the laws of the state in which the Building is located.

TENANT:

By:
---------------------------
Name:
-------------------------
Title:
------------------------

<PAGE>

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the "AGREEMENT"), dated as of September 28,
1998, is by and between FirstWorld Communications, Inc., a Delaware
corporation (the "COMPANY") and Sheldon S. Ohringer ("EXECUTIVE").

RECITAL

The Company desires to employ Employee, effective as of October 1, 1998
(the "COMMENCEMENT DATE"), on the terms and conditions set forth in this
Agreement, and Executive desires to be so employed.

AGREEMENT

IN CONSIDERATION of the premises and the mutual covenants set forth
below, the parties hereby agree as follows:

1. EMPLOYMENT. The Company hereby agrees to employ Executive as the
President and Chief Executive Officer of the Company, and Executive hereby
accepts such employment, on the terms and conditions hereinafter set forth.

2. TERM. The period of employment of Executive by the Company
hereunder (the "EMPLOYMENT PERIOD") shall commence at the Commencement Date
and shall continue through September 30, 2001; PROVIDED, THAT, commencing on
October 1, 2001, and on each October 1 thereafter, the Employment Period
shall automatically be extended for one (1) additional year unless either
party gives written notice not to extend this Agreement at least one (1)
month before such extension would be effectuated. The Employment Period may
be sooner terminated by either party in accordance with Section 6 of this
Agreement.

3. POSITION AND DUTIES.

(a) POSITION. During the Employment Period, Executive shall serve
as President and Chief Executive Officer of the Company, and shall report
solely and directly to the Board of Directors of the Company (the "BOARD").
Executive shall have those powers and duties normally associated with the
positions of President and Chief Executive Officer and such other powers and
duties as may be properly prescribed by the Board, provided that such other
powers and duties are consistent with Executive's positions as President and
Chief Executive Officer. Executive shall devote such time, attention and
energies to Company affairs as are necessary to fully perform his duties
(other than absences due to illness or vacation) for the Company. During the
Employment Period, Executive shall not, directly or indirectly, render
services to any other organization, entity or person, as an employee,
independent contractor, consultant or otherwise, with or without
compensation, without the prior written consent of the Board; PROVIDED,
HOWEVER, that, without obtaining the prior written consent of the Board,
Executive may (i) render

<PAGE>

consulting services, with or without compensation, to Sturm Group, Inc., a
Wyoming corporation, and Enron Capital & Trade Resources Corp., a Delaware
corporation ("ENRON"), (ii) participate in depositions arising in connection
with Executive's former employer, ICG Communications, Inc. and its affiliates
(collectively, "ICG"), and otherwise provide reasonable advisory services to
ICG, with respect to litigation matters relating to or arising out of events
that occurred during the period that Executive was an employee of ICG and
(iii) assist ICG in transition matters until October 31, 1998, so long as the
provision of any of the foregoing services does not materially hinder
Executive's ability to perform his duties to the Company hereunder.

(b) DIRECTORSHIP. During the term of this Agreement, Executive
shall be nominated and approved by the Board to serve as a director of the
Company.

4. PLACE OF PERFORMANCE. The principal place of employment of
Executive shall be at the Company's corporate headquarters, which currently
are located in San Diego and which will be relocated to the Denver
metropolitan area as soon as reasonably practicable; PROVIDED THAT Executive
shall not be required to move his principal residence away from the Denver
metropolitan area during the Employment Period. Until the Company's
corporate headquarters are relocated to the Denver metropolitan area,
Executive shall spend such time in San Diego as is reasonably required to
fulfill his responsibilities as President and Chief Executive Officer
hereunder.

5. COMPENSATION AND RELATED MATTERS.

(a) EQUALIZATION PAYMENT. To compensate Mr. Ohringer for certain
benefits that Mr. Ohringer may lose or forfeit as a result of his termination
of employment with his former employer, ICG, and commencement of employment
with the Company, the Company shall pay Executive in cash a $4,000,000
payment (the "EQUALIZATION PAYMENT") payable in three installments. The
first installment in the amount of $2,000,000 is due and payable on the
Commencement Date, the second installment in the amount of $1,000,000 is due
and payable on the first anniversary of the Commencement Date and the third
installment in the amount of $1,000,000 is due and payable on the second
anniversary of the Commencement Date; PROVIDED, HOWEVER, that Executive shall
have no right to receive the second and third installments of the
Equalization Payment if he is not employed by the Company (or one of its
Affiliates (as defined in Section 6(c)(iv) below)), whether or not employed
as the President and Chief Executive Officer, on the dates such payments
become due and payable as a result of Executive's (i) death, (ii) Disability
(as defined below) , (iii) termination for Cause (as defined below) or (iv)
voluntary termination of employment without Good Reason (as defined below).

With respect to the second and third installment payments,
Executive may, in lieu of a cash payment, elect to receive all or any portion
of each such installment payment in Series B Common Stock of the Company, par
value $.0001 per share (the "COMMON STOCK"). In order to receive all or any
portion of the second or third installment of the Equalization Payment in
Common Stock, Executive must deliver a notice indicating his desire to
receive a payment in

<PAGE>

Common Stock to the Company at least five (5) business days before the
applicable installment payment date. For purposes of determining the number
of shares of Common Stock Executive is entitled to receive on the applicable
payment date, the Common Stock to be issued in connection with each such
payment in lieu of cash will be valued at $5.00 and $7.50 per share for
purposes of the second and third installment payments, respectively.

(b) SALARY. During the Employment Period, the Company shall pay
Executive an annual base salary of $200,000 per year ("BASE SALARY").
Executive's Base Salary shall be paid in approximately equal installments in
accordance with the Company's customary payroll schedule and practices.
Executive's Base Salary shall be subject to annual reviews commencing October
1999 and each year thereafter. If Executive's Base Salary is increased by
the Company, such increased Base Salary shall then constitute the Base Salary
for all purposes of this Agreement. All compensation paid to Executive shall
be subject to withholding and other employment taxes imposed by applicable
law.

(c) ANNUAL BONUS. The Board's compensation committee (the
"COMPENSATION COMMITTEE") shall review Executive's performance at least once
annually during each year of the Employment Period and, based on the
Executive's performance, recommend whether the Company should award Executive
a cash bonus ("BONUS") in an amount not exceeding 50% of the Base Salary in
order to reward Executive for services rendered to the Company and/or as an
incentive for continued service to the Company. The amount of Executive's
Bonus shall be determined in the reasonable discretion of the Compensation
Committee and shall be dependent upon, among other things, the achievement of
certain performance levels by the Company, including, without limitation, (i)
the nature, magnitude and quality of the services performed by Executive for
the Company, (ii) the condition (financial and other) and results of
operations of the Company and (iii) the compensation paid for positions of
comparable responsibility and authority within the telecommunications
industry.

(d) IPO BONUS. If the Company consummates a Qualified Initial
Public Offering (as defined below) with a price of at least $10.00 per share
(before giving effect to any subdivision (by any stock split, stock dividend,
recapitalization or otherwise), combination (by reverse stock split or
otherwise) or other adjustment in the number of outstanding shares of the
Company as determined on a fully diluted basis made without the receipt of
consideration to the Company after the Commencement Date) within the first 18
months after the Commencement Date, the Company shall pay Executive in cash a
$1,000,000 bonus payable within 30 days of the completion of such Qualified
Initial Public Offering. Executive acknowledges that all decisions relating
to the Company's decision to effect an initial public offering of its equity
securities, including, without limitation, establishing the per share price
for such initial public offering, shall be made by the Board in its sole
discretion. For purposes of this Agreement, "Qualified Initial Public
Offering" means the Company's first underwritten initial public offering of
common equity securities under the Securities Act of 1933, as amended, after
the date hereof, with gross proceeds to the Company of at least $20,000,000,
that results in such common equity securities being listed for trading on a
national securities exchange or being authorized for trading on the

<PAGE>

Nasdaq National Market at such time.

(e) DEFERRED CASH BONUS. In addition to the IPO Bonus, Executive
shall be eligible to receive the payments set forth below if, during
Executive's service as the President and Chief Executive Officer of the
Company, the Company achieves any of the following milestones.

(i) If the Company consummates a Qualified Initial Public
Offering (as defined in Section 5(d) above) with a price of at least $10.00
per share (before giving effect to any subdivision (by any stock split,
stock dividend, recapitalization or otherwise), combination (by reverse
stock split or otherwise) or other adjustment in the number of outstanding
shares of the Company as determined on a fully diluted basis made without
the receipt of consideration to the Company after the Commencement Date)
before the first anniversary of the Commencement Date, the Company shall
pay Executive a cash payment of $4,207,500 in accordance with the
provisions of Section 5(e)(iv) hereof.

(ii) If the Company consummates a Qualified Initial Public
Offering (as defined in Section 5(d) above) with a price of at least $12.50
per share (before giving effect to any subdivision (by any stock split,
stock dividend, recapitalization or otherwise), combination (by reverse
stock split or otherwise) or other adjustment in the number of outstanding
shares of the Company as determined on a fully diluted basis made without
the receipt of consideration to the Company after the Commencement Date)
before the second anniversary of the Commencement Date, the Company shall
pay Executive a cash payment of $8,415,000 in accordance with the
provisions of Section 5(e)(iv) hereof; PROVIDED THAT if Executive is
entitled to receive the payment set forth in this clause (ii), in no event
will Executive also be entitled to receive the payment set forth in clause
(i) above.

(iii) If the Company has a market capitalization of at least
$1.2 billion (as adjusted as described below) for a period of twenty (20)
consecutive trading days at any time during the first three years of the
Employment Period, the Company shall pay Executive a cash payment equal to
(x) $16,830,000 minus (y) any amounts previously earned by Executive under
clause (i) or (ii) of this Section 5(e), in accordance with the provisions
of Section 5(e)(iv) hereof. For purposes of this Section 5(e)(iii), market
capitalization of $1.2 billion assumes 60,000,000 fully diluted shares of
Series B Common Stock (regardless of whether 60,000,000 shares of Series B
Common Stock are actually trading as of any period of determination) and a
market price of $20.00 per share (subject to adjustment as described in the
following sentence). If the number of fully diluted shares of Series B
Common Stock is greater than or less than 60,000,000 shares of Series B
Common Stock, the target market capitalization shall be proportionately
adjusted; PROVIDED THAT the $20.00 per share market price would not be so
adjusted, except to the extent required to appropriately reflect any
subdivision (by any stock split, stock dividend, recapitalization or
otherwise), combination (by reverse stock split or otherwise) or other
adjustment in the number of outstanding shares of the Company as determined
on a fully

<PAGE>

diluted basis made without the receipt of consideration to the Company
after the Commencement Date.

(iv) If Executive earns any of the payments set forth in the
preceding clauses (i), (ii) or (iii) of this Section 5(e) (such payments
individually or collectively, the "DEFERRED CASH BONUS,"), the Deferred
Cash Bonus shall be due and payable on September 30, 2001. Notwithstanding
the foregoing, upon (i) a Change of Control or (ii) the termination of
Executive's employment hereunder (A) upon Executive's death, (B) without
Cause or (C) by Executive for Good Reason, any Deferred Cash Bonus
previously earned by Executive that has not yet been paid to Executive
shall be paid within 30 days of the Date of Termination (as defined in
Section 7(b) below). In no event will the termination of Executive's
employment hereunder (including, without limitation, termination by the
Company for Cause or Disability or Executive's voluntary termination of
employment without Good Reason) affect Executive's right to receive the
Deferred Cash Bonus earned prior to such termination, such Deferred Cash
Bonus to be paid in accordance with this Section 5(e).

(f) STOCK OPTIONS.

(i) GRANT OF STOCK OPTION. Effective as of the Commencement
Date, Executive shall be awarded a stock option (the "STOCK OPTION") to
purchase 2,805,000 shares of Common Stock (as adjusted pursuant to Section
5(f)(iv) below). The parties intend that this figure represents an
approximate 5% equity interest in the Company as of the date hereof on a
fully diluted basis. If such determination proves to be materially
incorrect then the parties hereby agree to take or cause to be taken such
other actions as shall be necessary to grant additional options to
Executive or to reduce the options originally granted to Executive so that
after such adjustment Executive would own an approximate 5% equity interest
in the Company (as determined as of the date of this Agreement), and
otherwise to carry out the purposes of this subsection.

(ii) VESTING. The Stock Option shall vest (i) with respect to
one-third (1/3) of the shares purchasable thereunder, on the Commencement
Date, (ii) with respect to one-third (1/3) of the shares purchasable
thereunder, on the first anniversary of the Commencement Date and (iii)
with respect to the remaining one-third (1/3) of the shares purchasable
thereunder, on the second anniversary of the Commencement Date; PROVIDED,
HOWEVER, that immediately prior to the effectiveness of a Change of Control
(as defined in Section 6(e) below) of the Company, all of the shares
subject to the Stock Option shall immediately vest; and FURTHER PROVIDED,
HOWEVER, if the Company has a market capitalization of at least $1.2
billion (as adjusted as described in Section 5(e)(iii) above) for a period
of twenty (20) consecutive trading days at any time during the first three
years of the Employment Period, then all of the shares subject to the Stock
Option shall immediately vest.

<PAGE>

(iii) EXERCISE PRICE. Each share of Common Stock subject to the
Stock Option shall have an exercise price of $6.00 per share (as adjusted
pursuant to Section 5(f)(iv) below, the "EXERCISE PRICE").

(iv) ADJUSTMENT TO EXERCISE PRICE AND NUMBER OF SHARES. In
order to prevent dilution of the rights granted to Executive under the
Stock Option, the number of shares of Common Stock subject to the Stock
Option and the Exercise Price of such Common Stock shall be subject to
adjustment from time to time as provided in this Section 5(f)(iv).

(A) SUBDIVISION OR COMBINATION OF STOCK.

(1) If at any time or from time to time after the
Commencement Date the Company shall subdivide (by stock split,
stock dividend or otherwise) its outstanding shares of common
stock, the Exercise Price in effect immediately prior to such
subdivision shall, concurrently with the effectiveness of such
subdivision, be proportionately decreased. In the event the
outstanding shares of common stock shall be combined or
consolidated, by reclassification or otherwise, into a lesser
number of shares of common stock, the Exercise Price then in
effect shall, concurrently with the effectiveness of such
combination or consolidation, be proportionately increased.

(2) Upon each adjustment of the Exercise Price as
provided in Section 5(f)(iv)(A)(1), Executive thereafter shall be
entitled to purchase, at the Exercise Price resulting from such
adjustment, the number of shares of Common Stock (calculated to
the nearest whole share) obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the
number of shares purchasable pursuant hereto immediately prior to
such adjustment and dividing the product thereof by the Exercise
Price resulting from such adjustment.

(B) OTHER DISTRIBUTIONS.

(1) In case the Company shall after the Commencement
Date distribute to the holders of its common stock evidences of
its indebtedness or assets (excluding regular cash dividends or
distributions and dividends or distributions referred to in
Section 5(f)(iv)(A) above) in connection with a split-up, spin-
off or otherwise, then in each such case the Exercise Price in
effect thereafter shall be determined by multiplying the Exercise
Price in effect immediately prior thereto by a fraction, the
numerator of which shall be the total number of shares of common
stock outstanding multiplied by the Fair Market Value (as defined
in Section 5(f)(iv)(E) below) per share of common stock prior to
such distribution,

<PAGE>

less the fair market value (as determined by the Board) of
said assets or evidences of indebtedness so distributed, and
the denominator of which shall be the total number of shares
of common stock outstanding multiplied by the Fair Market
Value per share of common stock prior to the distribution.
Such adjustment shall be made successively whenever such a
record date is fixed. Such adjustment shall be made whenever
any such distribution is made and shall become effective
immediately after the record date for the determination of
stockholders entitled to receive such distribution.

(2) Upon each adjustment of the Exercise Price as
provided in Section 5(f)(iv)(B)(1), Executive thereafter shall be
entitled to purchase, at the Exercise Price resulting from such
adjustment, the number of shares of Common Stock (calculated to
the nearest whole share) obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the
number of shares purchasable pursuant hereto immediately prior to
such adjustment and dividing the product thereof by the Exercise
Price resulting from such adjustment.

(C) No adjustment in the Exercise Price and/or the
number of shares subject to the Stock Option shall be made if such
adjustment would result in a change in (i) the Exercise Price of less
than one cent ($0.01) per share or (ii) the number of shares
represented by the Stock Option of less than one share (the
"ADJUSTMENT THRESHOLD AMOUNT"). Any adjustment not made because the
Adjustment Threshold Amount is not satisfied shall be carried forward
and made, together with any subsequent adjustments, at the earlier of
such time as (a) the aggregate amount of all such adjustments is at
least equal to the Adjustment Threshold Amount or (b) the shares of
Common Stock subject to the Stock Option are acquired.

(D) Upon the occurrence of each adjustment or
readjustment of the Exercise Price pursuant to this Section 5(f)(iv),
the Company promptly shall compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to Executive
a certificate setting forth such adjustment or readjustment, showing
in detail the facts upon which such adjustment or readjustment is
based.

(E) "Fair Market Value" of a share of common stock as
of a given date shall be: (i) the average closing sale price of a
share of common stock on the principal exchange on which the common
stock is then trading, if any, over the last ten trading days prior to
such date, or, if shares were not traded during such period, over the
next preceding ten trading day period during which a sale occurred;
(ii) if the common stock is not traded on an exchange but is quoted on
Nasdaq or a successor quotation system, (1) the average closing sale
price over the last ten trading days (if the

<PAGE>

common stock is then quoted on the Nasdaq National Market or the
Nasdaq SmallCap Market) or (2) the mean between the closing
representative bid and asked prices (in all other cases) for a share
of the common stock over the last ten trading days prior to such
date, or, if shares were not traded during such period, then over
the next preceding ten trading day period during which a sale
occurred, as reported by Nasdaq or such successor quotation system;
(iii) if the common stock is not publicly traded on an exchange and
not quoted on Nasdaq or a successor quotation system, the mean
between the closing bid and asked prices for a share of common stock
over the last ten trading days prior to such date, or, if shares were
not traded during such period, then over the next preceding ten
trading day period during which a sale occurred, as determined in
good faith by the Board; or (iv) if the common stock is not publicly
traded, the fair market value of a share of common stock established
by the Board acting in good faith.

(F) Prior to the consummation of any recapitalization,
reorganization, reclassification, consolidation, merger or other
transaction which is effected in such a way that holders of common
stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in
exchange for such securities (each an "ORGANIC CHANGE"), the Company
shall make appropriate provision to ensure that Executive shall have
the right to acquire and receive upon Executive's acquisition of the
shares of Common Stock subject to the Stock Option subsequent to such
consummation, in lieu of or in addition to (as the case may be) the
shares of Common Stock subject to the Stock Option , such shares of
stock, securities or assets as Executive would be entitled to receive
if the shares of Common Stock subject to the Stock Option had been
acquired immediately prior to such Organic Change. In any such case,
the Company shall make appropriate provision with respect to
Executive's rights and interests to insure that the provisions of this
Section 5(f)(iv) shall thereafter be applicable to the Stock Option.
The Company shall not effect any such Organic Change unless, prior to
the consummation thereof, the successor entity (if other than the
Company) resulting from such Organic Change (including a purchaser of
all or substantially all of the Company's assets) assumes by written
instrument the obligation to deliver to Executive such shares of
stock, securities or assets as, in accordance with the foregoing
provisions, Executive may be entitled to acquire upon acquisition of
the shares of Common Stock subject to the Stock Option.

(v) The Company hereby represents and warrants to Executive
that: (a) at the time of grant, the Stock Option shall be granted by the
Board or by a compensation committee of the Board satisfying the conditions
for "non-employee directors" under Rule 16b-3, promulgated under the
Securities Exchange Act of 1934, as amended, (b) at the time of grant, the
Stock Option will be properly authorized and approved by the Board and/or
its compensation committee and (c) the Common Stock underlying the Stock
Option will be registered with the Securities and Exchange Commission on a
Form S-8 Registration Statement within sixty (60) days after the

<PAGE>

Commencement Date.

(vi) The agreement evidencing the Stock Option will provide
that Executive has seven years from the Commencement Date to exercise the
Stock Option. The parties acknowledge that until an agreement evidencing
the Stock Option is delivered to Executive, the provisions of this Section
5(f) represent the Company's obligation to issue the Stock Option to
Executive and all other material terms and conditions relating to the Stock
Option.

(vii) Upon any exercise of the Stock Option, Executive agrees
that he will hold at least 40% of the shares acquired pursuant to such
Stock Option exercise for at least one year from the date of such Stock
Option exercise; PROVIDED, HOWEVER, that the foregoing requirement will not
apply from and after (i) a Change in Control (as defined below) of the
Company or (ii) a merger, consolidation or other transaction in which the
Company is not the surviving entity and in which all of the Company's
stockholders receive cash or other consideration for their shares as a
result of such merger, consolidation or other transaction. In addition, in
connection with a merger, consolidation or other transaction in which the
Company is not the surviving entity and in which all of the Company's
stockholders receive stock for their shares as a result of such merger,
consolidation or other transaction, the period during which Executive held
the restricted shares of the Company will be added to the time Executive
holds the shares acquired in connection with such merger, consolidation or
other transaction for purposes of determining the one year holding period
for the restricted shares.

In connection with all Stock Option exercises, certificates
representing an aggregate of 40% of the shares acquired pursuant to such
exercise shall be endorsed conspicuously as follows:

"BY THE TERMS OF AN EMPLOYMENT AGREEMENT, CERTAIN RESTRICTIONS
HAVE BEEN PLACED ON THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE. THE CORPORATION WILL FURNISH A COPY OF SUCH AGREEMENT TO THE
HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON REQUEST TO THE CORPORATION
AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE."

In addition, the Company will be entitled to issue "stop-transfer" orders
to its transfer agent (the "Transfer Agent") with respect to the Common
Stock that bears the endorsement set forth above. At the conclusion of
each applicable one-year period, the Company will cause the Transfer Agent
to remove the above legend from the shares bearing such legend and which
were restricted from transfer during the prior one-year period pursuant to
this Section 5(f)(vii).

<PAGE>

(viii) Executive acknowledges that he (or his estate) will
have ninety (90) days from the Date of Termination (as defined in Section
7(b) below) to exercise all shares of Common Stock vested under the Stock
Option as of the Date of Termination.

(g) RIGHT OF FIRST REFUSAL.

(i) SUBSEQUENT OFFERINGS. Executive shall have a right of
first refusal to purchase his pro rata share of all Equity Securities (as
defined below) that the Company may from time to time propose to sell and
issue after the Commencement Date, other than the Equity Securities
excluded by Section 5(g)(vi) hereof. Executive's pro rata share is equal
to the ratio of (A) the number of shares of Common Stock which Executive
could hold assuming an immediate right to exercise the Stock Option for all
shares purchasable thereunder (whether vested or unvested) immediately
prior to the issuance of such Equity Securities to (B) the total number of
shares of the Company's outstanding common stock (including all shares of
common stock issued or issuable upon conversion or exercise of any
outstanding warrants, options or other convertible securities) immediately
prior to the issuance of the Equity Securities. The term "Equity
Securities" shall mean (i) any common stock or preferred stock of the
Company, (ii) any security convertible, with or without consideration, into
any common stock or preferred stock (including any option to purchase such
a convertible security), (iii) any security carrying any warrant or right
to subscribe to or purchase any common stock or preferred stock or (iv) any
such warrant or right.

(ii) EXERCISE OF RIGHTS. If the Company proposes to issue any
Equity Securities, it shall give Executive written notice of its intention,
describing the Equity Securities, the price and the terms and conditions
upon which the Company proposes to issue the same. Executive shall have
fifteen (15) days from the giving of such notice to agree to purchase his
pro rata share of the Equity Securities for the price and upon the terms
and conditions specified in the notice by giving written notice to the
Company and stating therein the quantity of Equity Securities to be
purchased. Notwithstanding the foregoing, the Company shall not be
required to offer or sell such Equity Securities to Executive if such offer
or sale would cause the Company to be in violation of applicable federal
securities laws by virtue of such offer or sale.

(iii) ISSUANCE OF EQUITY SECURITIES TO OTHER PERSONS. If not
all of the Eligible Holders (as defined below) elect to purchase their pro
rata share of the Equity Securities; then the Company shall promptly notify
in writing the Eligible Holders who do so elect and shall offer such
Eligible Holders the right to acquire such unsubscribed shares. The
Eligible Holders shall have five (5) days after receipt of such notice to
notify the Company of their election to purchase all or a portion thereof
of the unsubscribed shares. If the Eligible Holders fail to exercise in
full the rights of first refusal, the Company shall have one hundred eighty
(180) days thereafter to sell the Equity Securities in respect of which the
Eligible Holders' rights were not exercised, at a price and upon general
terms and conditions which, in the reasonable judgment of the Board, are
reasonably similar or

<PAGE>

more favorable for the Company than those offered to the Eligible
Holders. If the Company has not sold such Equity Securities within one
hundred eighty (180) days of the notice provided pursuant to Section
5(g)(ii) above, the Company shall not thereafter issue or sell any
Equity Securities, without first offering such securities to the
Eligible Holders in the manner provided above.

(iv) TERMINATION OF RIGHTS OF FIRST REFUSAL. The rights of
first refusal established by this Section 5(g) shall not apply to, and
shall terminate upon the earlier of (i) January 31, 2004, (ii) the day
immediately prior to the closing of a Qualified Initial Public Offering or
(iii) the Date of Termination (as defined in Section 7(b) below).

(v) TRANSFER OF RIGHTS OF FIRST REFUSAL. Executive's rights
of first refusal may not be transferred and any purported transfer in
violation of this provision shall result in the immediate termination of
such rights of first refusal.

(vi) EXCLUDED SECURITIES. The rights of first refusal
established by this Section 5(g) shall have no application to any of the
following Equity Securities:

(1) shares of common stock (and/or options, warrants or other
common stock purchase rights issued pursuant to such options, warrants
or other rights) issued or to be issued to employees, officers or
directors of, or consultants or advisors to, the Company or any
subsidiary, pursuant to stock purchase or stock option plans that are
approved by the Board;

(2) stock issued pursuant to any options, warrants, rights or
agreements outstanding or existing as of the Commencement Date;

(3) any Equity Securities issued pursuant to a merger,
consolidation, acquisition or similar business combination;

(4) shares of common stock issued in connection with any stock
split, stock dividend or recapitalization by the Company;

(5) any Equity Securities issued pursuant to any equipment
leasing arrangement, or debt financing from a bank or similar
financial institution approved by the Board;

(6) any Equity Securities that are issued by the Company
pursuant to a registration statement filed under the Securities Act;
and

(7) shares of the Company's common stock or preferred stock
issued in connection with strategic transactions involving the Company
and other entities, including (A) joint ventures, manufacturing,
marketing or distribution arrangements or (B) technology transfer or
development arrangements; provided that such strategic transactions
and the issuance of shares therein, have been

<PAGE>

approved by the Board and the Board makes a determination in good
faith that the primary purpose of such transaction is not to raise
capital for the Company.

For purposes hereof, the term "Eligible Holder" means Executive,
Colorado Spectra 1, LLC, a Colorado limited liability company ("SPECTRA 1"),
Colorado Spectra 2, LLC, a Colorado limited liability company ("SPECTRA 2"),
Colorado Spectra 3, LLC, a Colorado limited liability company ("SPECTRA 3"),
and Enron.

(h) FLIGHT UPGRADES. When Executive travels on business related
to his position as President and Chief Executive Officer of the Company he
shall be entitled to purchase flight upgrades. The Company agrees to
reimburse Executive for the cost of such flight upgrades in accordance with
the provisions of Section 5(i) below.

(i) EXPENSES. The Company shall promptly reimburse Executive for
all reasonable business expenses upon the presentation of reasonably itemized
statements of such expenses in accordance with the Company's policies and
procedures now in force or as such policies and procedures may be modified
with respect to all senior executive officers of the Company.

(j) VACATION. Executive shall be entitled to four (4) weeks paid
vacation in respect of each 12-month period during the Employment Period.

(k) SERVICES FURNISHED. During the Employment Period, the Company
shall furnish Executive with office space, stenographic and secretarial
assistance and such other facilities and services as shall be required or
reasonably requested for the performance of his duties hereunder.

(l) WELFARE AND PENSION PLANS. In addition to Executive's Base
Salary and any incentive compensation and bonuses awarded to Executive
hereunder, he (and his family) shall be entitled to participate, to the
extent that he is (and they are) eligible under the terms and conditions
thereof, in any pension, retirement, hospitalization, insurance, disability
or medical service plan generally available to the executive officers of the
Company that may be in effect from time to time during the Employment Period.
The Company shall be under no obligation to institute or continue the
existence of any such employee benefit plan.

(m) OTHER BENEFITS. Executive shall be provided with (or
reimbursed for) other reasonable benefits for his position with the Company,
as mutually agreed to by Executive and the Board.

6. TERMINATION. Executive's employment hereunder may be terminated
during the Employment Period under the following circumstances:

(a) DEATH. Executive's employment hereunder shall terminate upon
his death.

<PAGE>

(b) DISABILITY. If, as a result of Executive's incapacity due to
physical or mental illness, Executive shall have been substantially unable to
perform his duties hereunder for an entire period of ninety (90) consecutive
days, and within thirty (30) days after written Notice of Termination (as
defined in Section 7(a)) is given after such ninety (90) day period,
Executive shall not have returned to the substantial performance of his
duties on a full-time basis, the Company shall have the right to terminate
Executive's employment hereunder for "Disability," and such termination in
and of itself shall not be, nor shall it be deemed to be, a breach of this
Agreement.

(c) CAUSE. The Company shall have the right to terminate
Executive's employment for Cause (as defined), and such termination in and of
itself shall not be, nor shall it be deemed to be, a breach of this
Agreement. For purposes of this Agreement, the Company shall have "Cause" to
terminate Executive's employment upon Executive's:

(i) conviction of, or plea of guilty or nolo contendere to,
any crime constituting a felony; or

(ii) commission of a material act of dishonesty, fraud,
misrepresentation or other act of moral turpitude that would, in the
Board's reasonable judgment, prevent the effective performance of his
duties hereunder;

(iii) continued failure to substantially perform his duties
hereunder to the reasonable satisfaction of the Board (other than such
failure resulting from Executive's incapacity due to physical or mental
illness or subsequent to the issuance of a Notice of Termination by
Executive for Good Reason (as defined in Section 6(d)) after demand for
substantial performance is delivered by the Board in writing that
specifically identifies the manner in which the Board believes Executive
has not used reasonable best efforts to substantially perform his duties;
or

(iv) willful misconduct (including, but not limited to, a
willful breach of the provisions of Section 10) that is, in the Board's
reasonable judgment, injurious to the Company or to any entity in control
of, controlled by or under common control with the Company ("AFFILIATE").

For purposes of this Section 6(c), no act, or failure to act, by
Executive shall be considered "willful" unless committed in bad faith and
without a reasonable belief that the act or omission was in the best
interests of the Company or any Affiliates thereof; PROVIDED, HOWEVER, that
the requirements outlined in paragraphs (iii) or (iv) above shall be deemed
to have occurred if the Executive's action or non-action continues for more
than ten (10) days after Executive has received written notice of the
inappropriate action or non-action. This Section 6(c) shall not prevent
Executive from challenging the Board's determination that Cause exists or
that Executive has failed to cure any act (or failure to act) that
purportedly formed the basis for the Board's determination, under the
arbitration procedures set forth in Section 12 below.

<PAGE>

(d) GOOD REASON. Executive may terminate his employment for "Good
Reason" within thirty (30) days after Executive has actual knowledge of the
occurrence, without the written consent of Executive, of one of the following
events that has not been cured within thirty (30) days after written notice
thereof has been given by Executive to the Company (PROVIDED, that with
respect to this Section 6(d), the Company shall have the right to challenge
the Executive's determination that he has the right to terminate his
employment for "Good Reason" under the arbitration procedures set forth in
Section 12 below):

(i) the assignment to Executive of duties materially and
adversely inconsistent with Executive's status as President and Chief
Executive Officer of the Company or a material and adverse alteration in
the nature of Executive's duties and/or responsibilities, reporting
obligations, titles or authority;

(ii) a reduction by the Company in Executive's Base Salary or a
failure by the Company to pay any such amounts when due;

(iii) any purported termination of Executive's employment for
Cause which is not effected pursuant to the procedures of Section 6(c) (and
for purposes of this Agreement, no such purported termination shall be
effective);

(iv) the Company's failure to provide the Stock Option or the
Company's material breach of one or more of the stock option agreements
pursuant to which the Stock Option was issued to Executive;

(v) the Company's failure to substantially provide any
material employee benefits due to be provided to Executive;

(vi) the Company's failure to provide in all material respects
the indemnification set forth in Section 11 of this Agreement; or

(vii) a Change in Control (as defined below) of the Company.

Executive's continued employment during the thirty (30) day period
referred to above in this paragraph (d) shall not constitute Executive's
consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.

(e) WITHOUT GOOD REASON. Executive shall have the right to
terminate his employment hereunder without Good Reason by providing the
Company with a Notice of Termination, and such termination shall not in and
of itself be, nor shall it be deemed to be, a breach of this Agreement.

<PAGE>

For purposes of this Agreement, a "Change in Control" of the Company means
the occurrence of one of the following events:

(1) the sale, lease, transfer conveyance or other disposition,
in one or a series of related transactions, of all or substantially all of
the assets of the Company and its subsidiaries, taken as a whole, to any
person (as such term is defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT")) or group (as such
term is defined in Section 13(d)(3) of the Exchange Act and Section
14(d)(2) of the Exchange Act);

(2) the adoption of a plan relating to the liquidation or
dissolution of the Company; or

(3) any person (as defined above) or group (as defined above)
other than the Permitted Holders (as defined below) is or becomes the
Beneficial Owner (as defined below), directly or indirectly, of 50% or more
of the total voting stock or total common equity of the Company, including
by way of merger, consolidation or otherwise.

For the purposes hereof, the term "Permitted Holders" means (a) Donald L.
Sturm, Spectra 1, Spectra 2, Spectra 3, Enron, and any other person which any
of the foregoing entities directly or indirectly controls, or is under common
control with, or is controlled by (other than the Company and its
subsidiaries) and (b) any child, stepchild, spouse, sibling, son-in-law,
daughter-in-law, brother-in-law or sister-in-law (including adoptive
relationships) of Donald L. Sturm (or any entity all of the beneficial
ownership interests of which are owned by such a relative) to whom membership
interests in Spectra 1, Spectra 2 or Spectra 3 are distributed to upon the
death of Donald L. Sturm. The term "Beneficial Owner" means a beneficial
owner as defined in Rules 13d-3 and 13d-5 under the Exchange Act (or any
successor rules), including (but not limited to) the provisions of such rules
that a person shall be deemed to have beneficial ownership of all securities
that such person has a right to acquire within 60 days; PROVIDED that a
person will not be deemed a beneficial owner of, or to own beneficially, any
securities if such beneficial ownership (1) arises solely as a result of a
revocable proxy delivered in response to a proxy or consent solicitation made
pursuant to, and in accordance with, the Exchange Act and (2) is not also
then reportable on Schedule 13D or Schedule 13G (or any successor schedule)
under the Exchange Act. The term "controls," as used with respect to any
person, means the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of such person, whether
through the ownership of voting securities or voting interests or otherwise.

7. TERMINATION PROCEDURE.

(a) NOTICE OF TERMINATION. Any termination of Executive's
employment by the Company or by Executive during the Employment Period (other
than termination pursuant to Section 6(a)) shall be communicated by written
Notice of Termination (as defined below) to the other party hereto in
accordance with Section 14 below. For purposes of this Agreement, a

<PAGE>

"Notice of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated.

(b) DATE OF TERMINATION. "Date of Termination" shall mean (i) if
Executive's employment is terminated by his death, the date of his death,
(ii) if Executive's employment is terminated pursuant to Section 6(b), thirty
(30) days after Notice of Termination (provided that Executive shall not have
returned to the substantial performance of his duties on a full-time basis
during such thirty (30) day period) and (iii) if Executive's employment is
terminated for any other reason, the date on which a Notice of Termination is
given or any later date (within thirty (30) days after the giving of such
notice) set forth in such Notice of Termination.

8. COMPENSATION UPON TERMINATION OR DURING DISABILITY. In the event
Executive is disabled or his employment terminates during the Employment
Period, the Company shall provide Executive with the payments and benefits
set forth below and any Deferred Cash Bonus earned by Executive but not yet
paid to Executive (such Deferred Cash Bonus to be paid pursuant to Section
5(e)(iv) above). Executive acknowledges and agrees that the payments set
forth in this Section 8 constitute liquidated damages for termination of his
employment during the Employment Period.

(a) TERMINATION BY COMPANY WITHOUT CAUSE OR BY EXECUTIVE FOR GOOD
REASON. If Executive's employment is terminated by the Company without Cause
or by Executive for Good Reason:

(i) the Company shall pay to Executive a severance payment
equal to two times Executive's Base Salary and Bonus plus accrued vacation
for the 12 month period ending on the last day of the month preceding the
month Executive's employment is terminated by the Company without Cause or
by Executive for Good Reason, within thirty (30) days following the Date of
Termination;

(ii) the Company shall reimburse Executive pursuant to Section
5(i) for reasonable expenses incurred, but not paid prior to such
termination of employment;

(iii) Executive shall be entitled to any other rights,
compensation and/or benefits as may be due to Executive in accordance with
the terms and provisions of any agreements, plans or programs of the
Company;

(iv) all of the shares of Common Stock underlying the Stock
Option shall fully vest as of the Date of Termination; PROVIDED THAT if the
termination results from a Change of Control, such vesting will occur
immediately prior to the effectiveness of such Change of Control; and

<PAGE>

(v) the Company shall eliminate any and all restrictions on
Executive's ability either to engage in any activities, directly or
indirectly, in competition with the Company (including, without limitation,
the restrictions set forth in Section 10(c) of this Agreement but not the
restrictions set forth in Sections 10(a) and (b)), or to make any
investment in competition with the Company, and shall execute all documents
necessary or reasonably requested by Executive to reflect such elimination
of restrictions.

The foregoing notwithstanding, upon the written election of
Executive, in his sole discretion, the total of the benefits payable under
this Section 8(a) shall be reduced to the maximum after tax payment (as
determined by Executive and agreed to by the Board) to the extent the payment
of such amounts would cause Executive's total termination benefits (as
determined by Executive's tax advisor) to constitute an "excess" parachute
payment under Section 280G of the Code and by reason of such excess parachute
payment Executive would be subject to an excise tax under Section 4999(a) of
the Code. If Executive fails to make the election described in this
paragraph, no reduction in the termination benefits payable to Executive
shall be made.

(b) CAUSE OR BY EXECUTIVE WITHOUT GOOD REASON. If Executive's
employment is terminated by the Company for Cause or by Executive (other than
for Good Reason):

(i) the Company shall pay Executive his Base Salary and, to
the extent required by law or the Company's vacation policy, his accrued
vacation pay through the Date of Termination, as soon as practicable
following the Date of Termination;

(ii) the Company shall reimburse Executive pursuant to Section
5(i) for reasonable expenses incurred, but not paid prior to such
termination of employment, unless such termination resulted from a
misappropriation of Company funds; and

(c) DISABILITY. During any period that Executive fails to perform
his duties hereunder as a result of incapacity due to physical or mental
illness, Executive shall continue to receive his full Base Salary set forth
in Section 5(b) until his employment is terminated pursuant to Section 6(b).
In the event Executive's employment is terminated for Disability pursuant to
Section 6(b):

(i) the Company shall pay to Executive (A) his Base Salary and
accrued vacation pay through the Date of Termination, within 30 days
following the Date of Termination and (B) continued Base Salary (as
provided for in Section 5(a)) and Continued Benefits (as defined below) for
the shorter of (i) ninety (90) days or (ii) the date on which Executive
becomes entitled to long-term disability benefits under any applicable plan
or program of the Company paying the benefits described in Section 5(l);

<PAGE>

(ii) the Company shall reimburse Executive pursuant to Section
5(i) for reasonable expenses incurred, but not paid prior to such
termination of employment; and

For the purposes hereof, the term "Continued Benefits" means that the Company
shall maintain in full force and effect, for the continued benefit of
Executive, his spouse and his dependents for a specified period following the
Date of Termination, the medical, hospitalization, dental and life insurance
programs in which Executive, his spouse and his dependents were participating
immediately prior to the Date of Termination at the level in effect and upon
substantially the same terms and conditions (including, without limitation,
contributions required by Executive for such benefits) as existed immediately
prior to the Date of Termination; PROVIDED, that if Executive, his spouse or
his dependents cannot continue to participate in the Company programs
providing such benefits, the Company shall for the specified period following
the Date of Termination arrange to provide Executive, his spouse and his
dependents at the Company's expense with the economic equivalent of such
benefits which they otherwise would have been entitled to receive under such
plans and programs. Notwithstanding the foregoing, Executive's right to
receive the "Continued Benefits" shall terminate on the date or dates upon
which Executive receives substantially equivalent coverage and benefits,
without waiting period or pre-existing condition limitations, under the plans
and programs of a subsequent employer (such coverage and benefits to be
determined on a coverage-by-coverage, or benefit-by-benefit, basis).

(d) DEATH. If Executive's employment is terminated by his death:

(i) the Company shall pay in a lump sum to Executive's
beneficiary, legal representatives or estate, as the case may be,
Executive's Base Salary through the Date of Termination and one (1) times
Executive's annual rate of Base Salary, and shall provide Executive's
spouse and dependents with Continued Benefits for ninety (90) days;

(ii) the Company shall reimburse Executive's beneficiary, legal
representatives, or estate, as the case may be, pursuant to Section 5(i)
for reasonable expenses incurred, but not paid prior to such termination of
employment; and

(iii) Executive's beneficiary, legal representatives or estate,
as the case may be, shall be entitled to any other rights, compensation and
benefits as may be due to any such persons or estate in accordance with the
terms and provisions of any agreements, plans or programs of the Company.

(e) FAILURE TO EXTEND. A failure to extend the Agreement pursuant
to Section 2 by either party shall not in and of itself be treated as a
termination of Executive's employment for purposes of this Agreement and
shall not entitle Executive to any of the benefits

<PAGE>

set forth in this Section 8.

9. MITIGATION. Executive shall not be required to mitigate amounts
payable under this Agreement by seeking other employment or otherwise, and
there shall be no offset against amounts due Executive under this Agreement
on account of subsequent employment except as specifically provided herein.

10. CONFIDENTIAL INFORMATION, OWNERSHIP OF DOCUMENTS; NON-COMPETITION.

(a) CONFIDENTIAL INFORMATION. Executive shall hold in a fiduciary
capacity for the benefit of the Company all Confidential Information (as
defined below) relating to the Company and its businesses and investments,
which shall have been obtained by Executive during Executive's employment by
the Company and which is not generally available public knowledge (other than
by acts of Executive in violation of this Agreement). Except as may be
required or appropriate in connection with his carrying out his duties under
this Agreement, Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or any legal process, or as is
necessary in connection with any adversarial proceeding against the Company
(in which case Executive shall use his reasonable best efforts in cooperating
with the Company in obtaining a protective order against disclosure by a
court of competent jurisdiction), communicate or divulge any such
Confidential Information relating to the Company to anyone other than the
Company and those designated by the Company or on behalf of the Company in
the furtherance of its business or to perform duties hereunder.

For the purposes hereof, the term "Confidential Information" means, with
respect to any person, any information concerning such person or its
business, products, financial condition, prospects and affairs that is not
generally available to the public. The term Confidential Information shall
not include information that: (i) is already known to the recipient and was
properly obtained by the recipient prior to the date of this Agreement; (ii)
is in the public domain other than through a negligent act or omission or
willful misconduct of the recipient; (iii) is acquired in good faith from a
third party and, at the time of the acquisition, the recipient had no
knowledge or reason to believe that such information was wrongfully obtained
or disclosed by the third party; (iv) is independently developed by the
recipient from information not defined as "Confidential Information" in this
Agreement, as evidenced by the recipient's written records; (v) is disclosed
to third parties by the disclosing party without restriction; (vi) is
required to be disclosed under applicable law or by a valid subpoena or other
court or governmental order, decree, regulation or rule; PROVIDED, HOWEVER,
that if disclosure is required under this provision the recipient shall
advise the disclosing party of the requirement to disclose the Confidential
Information prior to such disclosure and as soon as reasonably practicable
after the recipient becomes aware of such required disclosure; and FURTHER
PROVIDED THAT upon the request of the disclosing party, the recipient agrees
to cooperate in good faith with any reasonable and lawful actions which the
disclosing party takes to resist such disclosure, limit the information to be
disclosed or limit the extent to which the information so disclosed may be
used or made available to third parties, at the cost of the disclosing party.

<PAGE>

(b) REMOVAL OF DOCUMENTS; RIGHTS TO PRODUCTS. All records, files,
drawings, documents, models, equipment, and the like relating to the
Company's business, which Executive has control over shall not be removed
from the Company's premises by Executive without the Board's written consent,
unless such removal is in the furtherance of the Company's business or is in
connection with Executive's carrying out his duties under this Agreement and,
if so removed by Executive, shall be returned to the Company promptly after
termination of Executive's employment hereunder, or otherwise promptly after
removal if such removal occurs following termination of employment.
Executive shall assign to the Company all rights to trade secrets and other
products relating to the Company's business developed by him alone or in
conjunction with others at any time while employed by the Company.

(c) PROTECTION OF BUSINESS. During the Employment Period and
until the first anniversary of Executive's Date of Termination (but only in
the event Executive is terminated by the Company for Cause, Executive
terminates employment without Good Reason or Executive is terminated by the
Company for Disability), the Executive will not (i) engage, anywhere within
the geographical areas in which the Company or any of its controlled
Affiliates (the "DESIGNATED ENTITIES") are conducting their business
operations or providing services as of the Date of Termination, in any
business which is being engaged in by the Designated Entities as of the Date
of Termination or pursue or attempt to develop any project known to Executive
and which the Designated Entities are pursuing, developing or attempting to
develop as of the Date of Termination (a "PROJECT"), unless such Project has
been inactive for over nine (9) months, directly or indirectly, alone, in
association with or as a stockholder, principal, agent, partner, officer,
director, employee or consultant of any other organization, (ii) divert to
any entity which is engaged in any business conducted by the Designated
Entities in the same geographic area as the Designated Entities, any Project
or any customer of any of the Designated Entities or (iii) solicit any
officer, employee (other than secretarial staff) or consultant of any of the
Designated Entities to leave the employ of any of the Designated Entities.
Notwithstanding the preceding sentence, Executive shall not be prohibited
from owning less than five (5%) percent of any publicly traded corporation,
whether or not such corporation is in competition with the Company. If, at
any time, the provisions of this Section 10(c) shall be determined to be
invalid or unenforceable, by reason of being vague or unreasonable as to
area, duration or scope of activity, this Section 10(c) shall be considered
divisible and shall become and be immediately amended to only such area,
duration and scope of activity as shall be determined to be reasonable and
enforceable by the court or other body having jurisdiction over the matter;
and Executive agrees that this Section 10(c) as so amended shall be valid and
binding as though any invalid or unenforceable provision had not been
included herein. This Section 10(c) shall not apply if Executive's
employment hereunder is terminated for any reason other than for Cause,
Disability or voluntary termination without Good Reason.

(d) INJUNCTIVE RELIEF. The parties hereto acknowledge that
Executive's services are unique and that, in the event of a breach or a
threatened breach by Executive of any of his obligations under this
Agreement, the Company will not have an adequate remedy at law.

<PAGE>

Accordingly, in the event of any such breach or threatened breach by
Executive, the Company shall be entitled to such equitable and injunctive
relief as may be available to restrain Executive and any business, firm,
partnership, individual, corporation or entity participating in such breach
or threatened breach from the violation of the provisions hereof. Nothing
herein shall be construed as prohibiting the Company from pursuing any other
remedies available at law or in equity for such breach or threatened breach,
including the recovery of damages and the immediate termination of the
employment of Executive hereunder.

(e) CONTINUING OPERATION. Except as specifically provided in this
Section 10, the termination of Executive's employment or of this Agreement
shall have no effect on the continuing operation of this Section 10.

11. INDEMNIFICATION. Upon the Commencement Date, Executive will enter
into the Company's standard directors and officers indemnification agreement
in the form attached hereto as EXHIBIT A.

12. ARBITRATION. Any controversy between Executive and the Company
involving the construction or application of any of the terms, provisions or
conditions of this Agreement, including, without limitation, the
determination of whether "Cause" or "Good Reason" exists under Section 6(c)
or Section 6(d) hereof and claims involving specific performance, shall on
the written request of either party served on the other in accordance with
Section 14 below be submitted to binding arbitration. EACH PARTY, BY SIGNING
THIS AGREEMENT, VOLUNTARILY, KNOWINGLY AND INTELLIGENTLY WAIVES ANY RIGHTS
SUCH PARTY MAY OTHERWISE HAVE TO SEEK REMEDIES IN COURT OR OTHER FORUMS,
INCLUDING THE RIGHT TO A JURY TRIAL. Arbitration shall comply with and be
governed in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "AAA"). The arbitration will be conducted only
in Denver, Colorado, before a single arbitrator selected by the parties or,
if they are unable to agree on an arbitrator, before an arbitrator selected
by the AAA. The arbitrator shall have full authority to order specific
performance and award damages and other relief available under this Agreement
or applicable law, but shall have no authority to add to, detract from,
change or amend the terms of this Agreement or existing law. All arbitration
proceedings, including settlements and awards, shall be confidential. The
decision of the arbitrator will be final and binding, and judgment on the
award by the arbitrator may be entered in any court of competent
jurisdiction. THIS SUBMISSION AND AGREEMENT TO ARBITRATE WILL BE
SPECIFICALLY ENFORCEABLE. The arbitrator will have no power to award
punitive or exemplary damages, to ignore or vary the terms of this Agreement
and any other agreement between Executive and the Company and will be bound
by apply controlling law. The prevailing party in any such arbitration shall
be entitled to receive the costs of arbitration, including reasonable
attorneys' fees and costs, from the losing party.

<PAGE>

13. SUCCESSORS; BINDING AGREEMENT.

(a) COMPANY'S SUCCESSORS. No rights or obligations of the Company
under this Agreement may be assigned or transferred except that, without
limiting Executive's rights under this Agreement upon a Change of Control,
the Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken
place. As used in this Agreement, "Company" shall mean the Company as herein
before defined and any successor to its business and/or assets (by merger,
purchase or otherwise) which executes and delivers the agreement provided for
in this Section 13 or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law.

(b) EXECUTIVE'S SUCCESSORS. No rights or obligations of Executive
under this Agreement may be assigned or transferred by Executive other than
his rights to payments or benefits hereunder, which may be transferred only
by will or the laws of descent and distribution. Upon Executive's death, this
Agreement and all rights of Executive hereunder shall inure to the benefit of
and be enforceable by Executive's beneficiary or beneficiaries, personal or
legal representatives, or estate, to the extent any such person succeeds to
Executive's interests under this Agreement. Executive shall be entitled to
select and change a beneficiary or beneficiaries to receive any benefit or
compensation payable hereunder following Executive's death by giving the
Company written notice thereof. In the event of Executive's death or a
judicial determination of his incompetence, reference in this Agreement to
Executive shall be deemed, where appropriate, to refer to his
beneficiary(ies), estate or other legal representative(s). If Executive
should die following his Date of Termination while any amounts would still be
payable to him hereunder if he had continued to live, all such amounts unless
otherwise provided herein shall be paid in accordance with the terms of this
Agreement to such person or persons so appointed in writing by Executive, or
otherwise to his legal representatives or estate.

14. NOTICE. For the purposes of this Agreement, notices, demands and
all other communications provided for in this Agreement shall be in writing
and shall be deemed to have been duly given when delivered either personally
or by United States certified or registered mail, return receipt requested,
postage prepaid, addressed as follows:

If to Executive:

Sheldon Ohringer
c/o FirstWorld Communications, Inc.
9333 Genesee Avenue, Suite 200
San Diego, CA 92121
Telecopy: (619) 552-8010

<PAGE>

With a copy to:

Robert Mintz, Esq.
Sherman & Howard L.L.C.
633 17th Street, Suite 3000
Denver, Colorado 80202
Telecopy: (303) 298-0940

If to the Company:

FirstWorld Communications, Inc.
9333 Genesee Avenue, Suite 200
San Diego, CA 92121
Attn: Secretary
Telecopy: (619) 552-8010

With a copy to:

David A. Hahn, Esq.
Latham & Watkins
701 "B" Street, Suite 2100
San Diego, California 92101
Telecopy: (619) 696-7419

or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address
shall be effective only upon receipt.

15. WAIVER. No provisions of this Agreement may be amended, modified,
or waived unless such amendment or modification is agreed to in writing
signed by Executive and by a duly authorized officer of the Company, and such
waiver is set forth in writing and signed by the party to be charged. No
waiver by either party hereto at any time of any breach by the other party
hereto of any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions
or conditions at the same or at any prior or subsequent time

16. SURVIVAL. Except as otherwise expressly set forth herein, the
respective rights and obligations of the parties under this Agreement shall
survive Executive's termination of employment and the termination of this
Agreement to the extent necessary for the intended preservation of such
rights and obligations.

17. CHOICE OF LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Colorado without regard to its conflicts of law principles.

<PAGE>

18. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force
and effect.

19. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument. Facsimile
signatures will be deemed to be effective originals hereunder.

20. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
of the parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by
any officer, employee or representative of any party hereto in respect of
such subject matter. Any prior agreement of the parties hereto in respect of
the subject matter contained herein is hereby terminated and canceled.

21. STOCKHOLDER APPROVAL. The Company covenants to Executive that the
Company will obtain stockholder approval to this Agreement and the benefits
hereunder prior to the Commencement Date.

22. WITHHOLDING. All payments hereunder shall be subject to any
required withholding of Federal, state and local taxes pursuant to any
applicable law or regulation. The Company will withhold applicable taxes on
the Equalization Payment at the minimum withholding rate required under
applicable law.

23. SECTION HEADINGS. The section headings in this Agreement are for
convenience of reference only, and they form no part of this Agreement and
shall not affect its interpretation.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.

FIRSTWORLD COMMUNICATIONS, INC.,
a Delaware corporation

By: /s/ DONALD L. STURM
-----------------------------------------
Name: Donald L. Sturm
Title: President and Chief Executive Officer

/s/ SHELDON S. OHRINGER
--------------------------------------------
SHELDON S. OHRINGER

<PAGE>

EXHIBIT A

FORM OF

INDEMNIFICATION AGREEMENT

SEE EXHIBIT 10.1

<PAGE>

Exhibit 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of our report dated March 5, 1998, except
as to Note 13 which is as of March 17, 1998, relating to the financial
statements of FirstWorld Communications, Inc. (formerly SpectraNet
International)(a development stage enterprise), which appears in such
Prospectus. We also consent to the application of such report to the
Financial Statement Schedule for the three years ended September 30, 1997 and
for the period from September 1, 1993 (inception) through September 30, 1997
listed under Item 21(b) of this Registration Statement when such schedule is
read in conjunction with the financial statements referred to in our report.
The audits referred to in such report also included this schedule. We also
consent to the reference to us under the heading "Experts" in such Prospectus.

PRICE WATERHOUSE LLP

San Diego, California
October 8, 1998

<PAGE>

EXHIBIT 23.3

CONSENT OF BLUMENFELD & COHEN

[LETTERHEAD OF BLUMENFELD & COHEN]

October 8, 1998

FirstWorld Communications, Inc.
9333 Genesee, Suite 200
San Diego, California 92121

Re: Registration Statement on Form S-4
FirstWorld Communications, Inc.
File No. 333-57829
------------------

Ladies and Gentlemen:

We consent to your filing this letter as an exhibit to the Registration
Statement and to the reference to our firm contained under the heading "Legal
Matters."

Sincerely,

BLUMENFELD & COHEN

By: /s/ GLENN B. MANISHIN
Glenn B. Manishin, Partner