<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
FirstWorld Communications, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS AND PROXY STATEMENT
To the Stockholders of Firstworld Communications, Inc.:
Notice is hereby given that the Annual Meeting of the Stockholders of
FirstWorld Communications, Inc. (the "Company"), will be held at 10:00 a.m.
(MDT) on Thursday, June 3, 1999 at the Hyatt Regency Tech Center, 7800 Tufts
Avenue, Denver, CO 80237 for the following purposes:
1. The election of seven directors of the Company for the ensuing year,
to serve until the next Annual Meeting of Stockholders and until their
respective successors shall be duly elected and qualified as follows:
a. The present Board of Directors of the Company has nominated and
recommends for election as the directors to be elected by the holders
of Series A common stock, $.0001 par value per share (the "Series A
Common Stock") and Series B common stock, $.0001 par value per share
(the "Series B Common Stock"), voting together as a class, the
following six persons:
<TABLE>
<S> <C>
Donald L. Sturm Sheldon S. Ohringer
C. Kevin Garland James O. Spitzenberger
Melanie Sturm Stephen R. Horn
</TABLE>
b. The present Board of Directors of the Company has nominated and
recommends for election as the director to be elected by the holders of
Series B Common Stock, voting separately as a class, the following
person:
John C. Stiska
2. A proposal to approve the adoption of The 1999 Equity Incentive Plan
of FirstWorld Communications, Inc. and the reservation of 5,000,000 shares
of the Company's Series B Common Stock for issuance thereunder.
3. A proposal to approve the adoption of the 1998 Stock Purchase Plan of
FirstWorld Communications, Inc. and the reservation of 500,000 shares of
Series B Common Stock thereunder.
4. A proposal to approve the adoption of the FirstWorld Communications,
Inc. Quarterly Bonus Program and the reservation of 200,000 shares of
Series B Common Stock for issuance thereunder.
5. To transact such other business as may be properly brought before the
Annual Meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. The Board of Directors has fixed the close
of business on April 26, 1999 as the record date for the determination of
stockholders entitled to notice of and to vote at the Annual Meeting. A list
of such stockholders shall be open to the examination of any stockholder at
the Annual Meeting and for a period of ten days prior to the date of the
Annual Meeting at the offices of FirstWorld Communications, Inc., 7100 E.
Belleview Avenue, Suite 210, Greenwood Village, Colorado 80111.
Accompanying this Notice is a Proxy. WHETHER OR NOT YOU EXPECT TO BE AT THE
ANNUAL MEETING, PLEASE SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY. If you plan to attend the Annual Meeting and wish to vote your
shares personally, you may do so at any time before the Proxy is voted.
All stockholders are cordially invited to attend the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Jeffrey L. Dykes
Senior Vice President, General Counsel
and Secretary
Denver, Colorado
May 19, 1999
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
7100 E. Belleview Avenue, Suite 210
Greenwood Village, Colorado 80111
PROXY STATEMENT
for
ANNUAL MEETING OF STOCKHOLDERS
June 3, 1999
The Board of Directors of FirstWorld Communications, Inc., a Delaware
corporation (the "Company"), is soliciting the accompanying proxy card for use
at the Annual Meeting of Stockholders of the Company to be held on June 3,
1999 (the "Annual Meeting"), and at any adjournments thereof. This Proxy
Statement and the accompanying proxy card are first being sent to holders of
record on April 26, 1999 of the Series A Common Stock and the Series B Common
Stock on May 19, 1999. Unless contrary instructions are indicated on the proxy
card, all shares represented by valid proxies received pursuant to this
solicitation (and not revoked before they are voted) will be voted (i) for the
election of the seven directors of the Company; (ii) for the approval of The
1999 Equity Incentive Plan of FirstWorld Communications, Inc.; (iii) for the
approval of the 1998 Stock Purchase Plan of FirstWorld Communications, Inc.;
(iv) for the approval of the FirstWorld Communications, Inc. Quarterly Bonus
Program; (v) to act upon such other matters as may properly come before the
Annual Meeting. As to any other business which may properly come before the
Annual Meeting and be submitted to a vote of the stockholders, proxy cards
received by the Board of Directors will be voted in accordance with the best
judgment of the holders thereof. The Board of Directors is not currently aware
of any other matters proposed to be presented at the Annual Meeting. If any
other proposal is properly presented, the persons named in the accompanying
form of proxy will have discretionary authority to vote thereon in accordance
with their best judgment.
A Proxy may be revoked by written notice to the Secretary of the Company at
any time prior to the Annual Meeting, by executing a later Proxy or by
attending the Annual Meeting and voting in person.
Expenses related to the preparation and mailing of this Proxy Statement and
accompanying notice of meeting and form of proxy are to be paid by the
Company. Following the initial mailing of this Proxy Statement and form of
proxy, the Company and its agents may also solicit proxies by mail, telephone,
facsimile or in person. Employees of the Company who assist in such activities
will not receive additional compensation in connection therewith.
The Company's mailing address is 7100 E. Belleview Avenue, Suite 210,
Greenwood Village, Colorado 80111.
Voting
Stockholders of record at the close of business on April 26, 1999 (the
"Record Date") will be entitled to notice of and to vote at the Annual Meeting
or any adjournments thereof.
As of April 26, 1999, 10,135,164 shares of the Company's Series A common
stock, $.0001 par value per share ("Series A Common Stock"), and 16,961,201
shares of the Series B common stock, $.0001 par value per share ("Series B
Common Stock"), were outstanding. Each share of Series A Common Stock is
entitled to ten votes per share on each proposal to be considered by
stockholders. Each share of Series B Common Stock is entitled to one vote per
share on each proposal to be considered by stockholders.
A majority of the stock issued and outstanding and entitled to vote at any
meeting of stockholders, the holders of which are present in person or
represented by proxy, shall constitute a quorum for the transaction of
business at the Annual Meeting.
<PAGE>
Votes cast by proxy or in person at the Annual Meeting will be counted by
the person appointed by the Company to act as Inspector of Election for the
Annual Meeting. The Inspector of Election will treat shares represented by
Proxies that reflect abstentions or include "broker non-votes" as shares that
are present and entitled to vote for purposes of determining the presence of a
quorum. Abstentions or "broker non-votes" do not constitute a vote "for" or
"against" any matter and thus will be disregarded in the calculation of "votes
cast." Any unmarked Proxies, including those submitted by brokers or nominees,
will be voted in favor of the nominees of the Board of Directors, for the
approval of the adoption of The 1999 Equity Incentive Plan of FirstWorld
Communications, Inc., for the approval of the 1998 Stock Purchase Plan of
FirstWorld Communications, Inc. and for the approval of the FirstWorld
Communications, Inc. Quarterly Bonus Program, as indicated in the accompanying
proxy card.
2
<PAGE>
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's voting securities as of May 1, 1999, 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 Proxy Statement, 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., 7100 E. Belleview Avenue, Suite 210, Greenwood Village, Colorado 80111.
<TABLE>
<CAPTION>
Number of Number of
Series A Series B
Common Shares Common Shares Percent of Class(1)
Beneficially Beneficially -------------------------
Name Owned (1)(2) Owned (1)(2) Common Stock Voting Stock
---- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Donald L. Sturm(3)...... 5,000,000 15,452,849 54.07% 50.72%
Enron Corp.(4).......... 5,000,000 11,666,666 47.04 48.69
C. Kevin Garland(5)..... 0 0 * *
Stephen R. Horn(6)...... 0 0 * *
Sheldon S. Ohringer(7).. 0 935,000 3.34 *
James O.
Spitzenberger(8)....... 0 0 * *
John C. Stiska(9)....... 0 30,000 * *
Melanie Sturm(10)....... 0 0 * *
John Lewis(11).......... 0 77,769 * *
Robert Cerasoli(12)..... 0 342,417 1.26 *
Renney Senn(13)......... 0 882,274 3.26 *
Robert E. Randall(14)... 0 489,748 1.81 *
Dennis M. Mulroy(15).... 0 68,417 * *
All directors and
executive officers as a
group
(13 persons)(16)....... 5,000,000 16,423,809 55.23% 51.09%
</TABLE>
- --------
* Less than one percent beneficially owned
(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 May 1, 1999 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 Colorado Spectra 3, LLC ("Spectra 3"); (b) 1,392,757 shares
of Series B Common Stock held of record by Colorado Spectra 1, LLC
("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,
Colorado Spectra 2, LLC ("Spectra 2," and together with Spectra 1 and
Spectra 3, the "Sturm Entities") and Spectra 3. Beneficial ownership
[Footnotes continued on following page.]
3
<PAGE>
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 Sundance Assets, L.P., a Delaware limited partnership
("Sundance") and an affiliate of Enron Corp., an Oregon corporation
("Enron Corp."); (b) 3,333,333 shares of Series B Common Stock held of
record by Sundance; and (c) 8,333,333 shares of Series B Common Stock
subject to currently exercisable warrants held of record by Sundance.
(5) Excludes the securities owned by Enron Corp. described in Footnote (4)
above. Mr. Garland is an officer of Enron Capital & Trade Resources
Corp., a Delaware corporation and an affiliate of Enron Corp. ("ECT"),
but disclaims beneficial ownership of the shares owned by Enron Corp.
(6) Excludes the securities owned by Enron Corp. described in Footnote (4)
above. Mr. Horn is an officer of ECT, but disclaims beneficial ownership
of the shares owned by Enron Corp.
(7) 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.
(8) Excludes shares of Series A Common Stock and Series B Common Stock
beneficially owned by the Sturm Entities (described in note 3). 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: (a) 10,000 shares of Series B Common Stock held
directly by Mr. Stiska; and (b) 20,000 shares of Series B Common Stock
subject to currently exercisable options held by Mr. Stiska at an
exercise price of $3.00.
(10) Excludes shares of Series A Common Stock and Series B Common Stock
beneficially owned by the Sturm Entities (described in note 3). Ms. Sturm
owns 17.0%, 17.0% and 20.62% 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.
(11) Shares listed include: (a) 64,417 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; and
(c) 12,785 held of record jointly by Mr. Lewis and his wife. Mr. Lewis'
address is 16742 Bermejo St., Canyon Country, CA 91351.
(12) Shares listed include: (a) 261,417 shares of Series B Common Stock held
directly by Mr. Cerasoli; (b) 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; (c) 40,000 shares of Series B Common Stock held of record by Mr.
Cerasoli's wife; (d) 10,000 shares of Series B Common Stock held by Mr.
Cerasoli as custodian for Anna Michel Cerasoli; (e) 10,000 shares of
Series B Common Stock held by Mr. Cerasoli as custodian for Christopher
R. Cerasoli; and (f) 10,000 shares of Series B Common Stock held by Mr.
Cerasoli as custodian for Evan Todd Cerasoli. Mr. Cerasoli's address is
7224 Shoreline Dr. #178, San Diego, CA 92122.
(13) Shares listed include 882,274 shares of Series B Common Stock held of
record jointly by Mr. Senn and his wife. Mr. Senn's address is 2307
Corina Circle, Escondido, CA 92029.
(14) Shares listed include: (a) 183,082 shares of Series B Common Stock held
of record by Randall Lamb Associates Profit Sharing Plan and 16,666
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 M. 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; and (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. Mr. Randall's address is
4472 Heritage Glen Lane, San Diego, CA 92130.
(15) Shares listed include: (a) 5,000 shares of Series B Common Stock held
directly by Mr. Mulroy; (b) 45,000 shares of Series B Common Stock
subject to currently exercisable options held by Mr. Mulroy at an
exercise price of $.50; (c) 16,417 shares of Series B Common Stock
subject to currently exercisable options held by Mr. Mulroy at an
exercise
[Footnotes continued on following page.]
4
<PAGE>
price of $3.00; and (d) 2,000 shares of Series B Common Stock subject to
currently exercisable options held by Mr. Mulroy at an exercise price of
$3.00. Mr. Mulroy's address is 470 Mensha Place, San Diego, CA 92130.
(16) See notes 3 and 5-10. Excludes shares held by Enron Corp. Also excludes
shares held by John Lewis, Robert Cerasoli, Renney Senn, Robert E.
Randall and Dennis M. Mulroy, none of whom were employed by the Company
as of May 1, 1999. Of the 16,423,809 shares of Series B Common Stock
beneficially owned by the directors and executive officers as a group,
5,960 shares of Series B Common Stock may be acquired by certain
executive officers pursuant to the Company's Bonus Program (as defined
below). See Proposal 4.
5
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
General
The Company's Board of Directors currently consists of seven directors. The
director nominees listed below will serve until the next annual meeting of
stockholders of the Company and until their respective successors are duly
elected and qualified.
Vote Required
The six directors to be elected by the holders of the Series A Common Stock
and Series B Common Stock, voting together as a class, will be elected by a
favorable vote of a plurality of the voting power of the stock represented and
entitled to vote, in person or by proxy, at the Annual Meeting. The director
to be elected by the holders of the Series B Common Stock, voting separately
as a class, will be elected by a favorable vote of a plurality of the shares
of Series B Common Stock represented and entitled to vote, in person or by
proxy, at the Annual Meeting. Accordingly, abstentions or broker nonvotes as
to the election of directors will not affect the election of the candidates
receiving the plurality of votes. Unless instructed to the contrary, the
shares represented by the proxies will be voted FOR the election of each of
the nominees named below as directors.
Directors to be Elected by Holders of the Series A Common Stock and Series B
Common Stock Voting Together as a Class
The Board of Directors of the Company has nominated and recommends for
election as the directors to be elected by the holders of Series A Common
Stock and Series B Common Stock, voting together as a class, the following six
persons to serve until the next Annual Meeting of Stockholders and until their
respective successors shall have been duly elected and qualified.
The table below indicates the name, position with the Company and age of
each nominee for director as of May 1, 1999:
<TABLE>
<CAPTION>
Name Position Age
---- -------- ---
<S> <C> <C>
Donald L. Sturm......... Chairman of the Board 67
Sheldon S. Ohringer..... President, Chief Executive Officer and Director 42
C. Kevin Garland........ Director 31
James O. Spitzenberger.. Director 55
Melanie Sturm........... Director 37
Stephen R. Horn......... Director 41
</TABLE>
Director to be Elected by Holders of the Series B Common Stock Voting
Separately as a Class
The Board of Directors of the Company has nominated and recommends for
election as the director to be elected by the holders of Series B Common
Stock, voting separately as a class, the following person to serve until the
next Annual Meeting of Stockholders and until his respective successor shall
have been duly elected and qualified .
The table below indicates the name, position with the Company and age of
each nominee for director:
<TABLE>
<CAPTION>
Name Position Age
---- -------- ---
<S> <C> <C>
John C. Stiska.................................................. Director 57
</TABLE>
All of the nominees are presently directors of the Company, and following
the Annual Meeting there will be no vacancies on the Board. The enclosed Proxy
will be voted in favor of the persons nominated unless otherwise indicated. If
any of the nominees should be unable to serve or should decline to do so, the
discretionary
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<PAGE>
authority provided in the Proxy will be exercised by the present Board of
Directors to vote for a substitute or substitutes to be designated by the
Board of Directors. The Board of Directors does not believe at this time that
any substitute nominee or nominees will be required. In the event that a
nominee for director is proposed at the Annual Meeting, the enclosed proxy may
be voted in favor of or against such nominee or any other nominee proposed by
the Board of Directors.
Information Regarding Directors
The following sets forth the business experience of each of the nominees
over the last five years:
Donald L. Sturm. Mr. Sturm has been Chairman of the Board of Directors of
the Company since January 1998. Mr. Sturm served as President of the Company
from January 1998 through September 1998 and as Chief Executive Officer of the
Company from March 1998 through September 1998. Since December 1991, Mr. Sturm
has been a private equity investor, with interests in the telecommunications,
banking, real estate and healthcare industries, among others. Mr. Sturm
currently serves as chairman of the board of three bankholding companies with
nine banks that he owns in the Rocky Mountain area and the Midwest. Mr. Sturm
was a member of the group that brought 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 MFS
Communications which was taken public in 1993 and sold to MCI/WorldCom
Telecommunications, Inc. ("MCI/WorldCom") in 1996 for approximately $14.4
billion. Mr. Sturm owns significant ownership interests in MCI/WorldCom and
Level 3 Communications, Inc., KAPT, a Paris, France based telecommunications
company.
Sheldon S. Ohringer. Mr. Ohringer has been Chief Executive Officer,
President and Director of the Company since October 1, 1998. Prior to October
1998, Mr. Ohringer served in various capacities for ICG Communications, Inc.
("ICG") beginning in November 1994, most recently as Executive Vice
President--Telecom of ICG and President of ICG Telecom Group, Inc. ("ICG
Telecom"). Before working for ICG, Mr. Ohringer was Senior Vice President of
Sales and Business Development for U.S. Long Distance Corp. ("USLD") 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/WorldCom in 1990.
C. Kevin Garland. Mr. Garland has been a director of the Company and a
member of its Compensation Committee since January 1998. Mr. Garland joined
ECT in 1995. He currently serves as Vice President of Equity Investments for
ECT 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.
James O. Spitzenberger. Mr. Spitzenberger has been a director of the Company
and a member of its Audit Committee since 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 LLP.
Melanie Sturm. Ms. Sturm has been a director of the Company and a member of
its Compensation Committee since January 1998. Ms. Sturm is a private equity
investor and currently serves on the board of directors of MD Network, a
private healthcare concern, and Little Switzerland, Inc., a publicly traded
duty-free retailer. From 1990 to 1996, Ms. Sturm served as an Investment
Officer at International Finance Corporation, the
7
<PAGE>
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 graduated magna cum laude from Tufts University
and has an M.B.A. from INSEAD of Fontainebleau, France. Ms. Sturm is Donald L.
Sturm's daughter.
STEPHEN R. HORN. Mr. Horn is a director of the Company. In April 1999, Mr.
Horn was appointed to the Company's Board of Directors to fill the vacancy
created by the resignation of Mr. Rodney D. Malcolm. Mr. Horn has been the
Vice President of Principal Investments of ECT since 1996. Prior to 1996, Mr.
Horn was a principal of Yellowstone Energy Partners, Houston, Texas, a private
equity investing firm, where he started work in 1994. Mr. Horn holds an M.B.A.
from Harvard University and a B.S. from Texas A&M University.
JOHN C. STISKA. Mr. Stiska has been a director since September 1997. Mr.
Stiska currently is Chairman of Commercial Bridge Capital, LLC. 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 1996, Mr. Stiska was President and then Chairman and
Chief Executive Officer of Triton Group Ltd., where he worked since 1990.
Previously, Mr. Stiska practiced law for 20 years, specializing in corporate
law, mergers and acquisitions and securities law. In July 1998, Mr. Stiska
joined the law firm of Latham & Watkins in an of-counsel capacity. Mr. Stiska
serves on the board of directors of several companies, including Laser Power
Corporation, a publicly traded company.
Messrs. Sturm and Spitzenberger and Ms. Sturm were appointed to the Board of
Directors of the Company as the three directors the Sturm Entities are
entitled to appoint pursuant to the Securityholders Agreement (as defined
below). Likewise, Messrs. Garland and Horn were appointed to the Board of
Directors of the Company as the two directors ECT is entitled to appoint
pursuant to the Securityholders Agreement. See "Certain Relationships and
Related Transactions--Equity Investment--Securityholders Agreement"
INFORMATION REGARDING THE BOARD
BOARD MEETINGS
The Company's Board of Directors held 15 meetings during the twelve-month
period ended December 31, 1998. No nominee for director who served as a
director during the past year attended fewer than 75% of the aggregate of the
total number of meetings of the Board of Directors and the total number of
meetings of committees of the Board of Directors on which he or she served.
COMMITTEES OF THE BOARD
Chairman's Committee. The Chairman's Committee, which consists of Messrs.
Sturm, Ohringer and Garland, held three meetings during the twelve-month
period ended December 31, 1998. 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 Compensation Committee, which consists of Ms.
Sturm and Mr. Garland, held six meetings during the twelve-month period ended
December 31, 1998. The Compensation Committee reviews salaries, bonuses and
stock options of executive officers of the Company, and administers the
Company's executive compensation policies, stock option plans and the Bonus
Program.
Audit Committee. The Audit Committee, which consists of Mr. Spitzenberger,
held two meetings during the twelve-month period ended December 31, 1998. The
Audit Committee is primarily concerned with the effectiveness of the Company's
accounting policies and practices, financial reporting and internal controls.
Specifically, the Audit Committee recommends to the Board the firm to be
appointed as the Company's independent public accountants; reviews and
approves the scope of the annual examination of the books and records of the
Company; reviews the audit findings and recommendations of the independent
public accountants;
8
<PAGE>
monitors the extent to which the Company has implemented changes recommended
by the independent public accounts, or the Audit Committee; and provides
oversight with respect to accounting principles to be employed in the
Company's financial reporting.
Compensation of the Directors
Directors of the Company who are also employees of the Company receive no
directors' fees. Mr. Stiska, one of the Company's non-employee directors,
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 ("Corporate Managers") receives an annual management fee of
$500,000 plus out of pocket expenses. Corporate Managers is an affiliate of
the Sturm Entities, all of which are controlled by Mr. Sturm and in which Mr.
Spitzenberger and Ms. Sturm own membership interests, Messrs. Garland and Horn
are officers of ECT, which receives an annual management fee of $500,000 plus
out of pocket expenses. Corporate Managers and ECT receive such management
fees pursuant to three-year Management Consulting Services Agreements,
commencing on January 1, 1999. See "Certain Relationships and Related
Transactions--Equity Investment--Management Services Agreements"
The Company's Board of Directors Unanimously Recommends that Stockholders
vote "FOR" the Nominees Set Forth Above. Proxies Solicited by the Board of
Directors Will be so Voted Unless Stockholders Specify Otherwise on the
Accompanying Proxy.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company and their ages as of May 1, 1999 are
as follows:
<TABLE>
<CAPTION>
Name Position Age
---- -------- ---
<C> <S> <C>
Sheldon S. Ohringer President and Chief Executive Officer 42
David J. Gandini Executive Vice President 41
Jeffrey L. Dykes Senior Vice President, General Counsel and 44
Secretary
Marion K. Jenkins Senior Vice President, Information Technology and 45
Chief Information Officer
Douglas L. Kramer Senior Vice President and Chief Technical Officer 44
Scott M. Chase Senior Vice President, Corporate and Government 30
Affairs
Paul C. Adams Vice President, Finance, Treasurer and Assistant 36
Secretary
</TABLE>
The following descriptions set forth the business experience of each
executive officer of the Company over the last five years.
Sheldon S. Ohringer. Mr. Ohringer has been Chief Executive Officer,
President and Director of the Company since October 1, 1998. Prior to October
1998, Mr. Ohringer served in various capacities for ICG beginning in November
1994, most recently as Executive Vice President--Telecom of ICG and President
of ICG Telecom. Before working for ICG, Mr. Ohringer was Senior Vice President
of Sales and Business Development for USLD 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/WorldCom in 1990.
David J. Gandini. Mr. Gandini has been Executive Vice President of the
Company since November 1998. Mr. Gandini has responsibility for sales and
field operations. From 1996 to October 1998, Mr. Gandini served in various
capacities at ICG Telecom, most recently as Senior Vice President of Wholesale
Services. During this period, Mr. Gandini directed the build of a 166-node
network, one of the largest voice/data/Internet Protocol (IP) domestic
networks. Before joining ICG Telecom, Mr. Gandini was the President of Pace
Network Services, a
9
<PAGE>
Signaling System 7 ("SS7") provider. Mr. Gandini was recently ranked among the
top 50 most influential people in competitive long distance by Phone+, an
industry trade publication. Mr. Gandini received his bachelor's degree in
telecommunications from Michigan State University.
Jeffrey L. Dykes. Mr. Dykes has been Senior Vice President and General
Counsel of the Company since January 1999 and is responsible for all legal
affairs of the Company. In March 1999, Mr. Dykes was appointed as Secretary of
the Company. Prior to joining the Company, Mr. Dykes served in various
capacities in the legal department at ICG from February 1996 through January
1999, most recently as Assistant General Counsel. From 1991 through 1995, Mr.
Dykes served in various positions at the Denver and Regional Office of the
Resolution Trust Corporation, most recently as Senior Attorney. In 1997, Mr.
Dykes received a Certificate of Advanced Studies in Telecommunications from
University College at the University of Denver. Mr. Dykes obtained his juris
doctor from the University of Denver College of Law in 1981.
Marion K. Jenkins, Ph.D. Dr. Jenkins has been Senior Vice President of
Information Technology and Chief Information Officer of the Company since
November 1998. For the previous two years, Dr. Jenkins held various executive
officer positions, most recently as Vice President of Strategic Client
Applications at Qwest Communications International, Inc., Vice President of
Sales Operations at LCI International ("LCI") and Chief Information Officer at
USLD. Dr. Jenkins worked in these various positions as a result of the
acquisition of LCI by Qwest and the Acquisition of USLD by LCI. Prior thereto,
Dr. Jenkins served as Vice President of Sales for American Telco, Inc. from
1986 through 1996. Dr. Jenkins holds Ph.D. and M.S. degrees in mechanical
engineering from Stanford University, and B.S. degree, cum laude, in
mechanical engineering from Utah State University.
Douglas L. Kramer. Mr. Kramer has been Senior Vice President and Chief
Technical Officer of the Company since December 1998. Mr. Kramer served in
various capacities for ICG Telecomfor the previous six years, most recently as
Vice President of Planning. While at ICG Telecom, Mr. Kramer directed all
integrated planning; network, switch, SS7 and data planning and engineering;
switch provisioning; and industry code compliance. In addition, he was
responsible for developing and deploying ICG's 3,000-mile fiber based network
throughout nine states and was credited with deploying one of the nation's
largest IP networks. Prior to working at ICG Telecom, Mr. Kramer directed
network services for MidAmerican Communications, which was acquired by
MCI/WorldCom in 1991.
Scott M. Chase. Mr. Chase has been Senior Vice President, Corporate and
Government Affairs since October 1998. 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 former Governor of Colorado,
Roy Romer
Paul C. Adams. Mr. Adams has been Vice President of Finance and Treasurer
since January 1999. From 1993 to 1998, Mr. Adams was employed by Western Gas
Resources, Inc., most recently as Controller. From 1987 to 1993, Mr. Adams was
employed by PricewaterhouseCoopers LLP, most recently as Manager of Business
Assurance. Mr. Adams also the principal financial and accounting officer of
the Company. He received a Bachelor of Science Degree in Business from the
University of Colorado in 1987 and a Bachelor of Arts Degree in Economics from
the University of Alberta in 1985. He is a Certified Public Accountant.
10
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table shows, for the twelve months ended December 31, 1998 and
the fiscal years ended September 30, 1998 and 1997, the cash and non-cash
compensation earned by (i) all individuals who served as the Company's Chief
Executive Officer during 1998, (ii) the four most highly compensated executive
officers other than the Chief Executive Officer who were serving as executive
officers as of December 31, 1998 and (iii) two individuals who would have been
included in clause (ii) had they been serving as an executive officer on
December 31, 1998 (together, the "Named Executive Officers").
Summary Compensation Table(1)
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
--------------------------------------- ------------
Securities
Underlying
Options/
Twelve Other Annual SARs (#) (No All Other
Name and Principal Months Salary Bonus Compensation SARs Compensation
Position(s) Ended ($) ($) ($) Granted) ($)
------------------ -------- ------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Sheldon S. 12/31/98 50,006 2,000,000(3) 2,805,000
Ohringer,(2)...........
President and Chief
Executive Officer
Donald L. Sturm,(4)..... 12/31/98 0(5)
Former Chief Executive
Officer 9/30/98 0(5)
Renney Senn,(6)......... 12/31/98 0 16,417 72,443(7)
Former Chief 9/30/98 26,666 72,443(7)
Executive Officer 9/30/97 223,022
John Lewis,(8).......... 12/31/98 152,800 40,000
Former Senior Vice
President, 9/30/98 139,167 2,000 56,417
Network and Operations 9/30/97 130,000 14,000
Dennis M. Mulroy,(9).... 12/31/98 140,000 10,000
Former Vice President, 9/30/98 131,667 26,417
Finance and
Administration 9/30/97 80,087 50,000
Robert E. Randall,(10).. 12/31/98 100,000
Former Executive 9/30/98 116,417
Vice President and 9/30/97 41,085
former acting Chief
Financial Officer
Robert Cerasoli,(11).... 12/31/98 105,000 16,417 59,099(12)
Former Senior Vice
President, 9/30/98 131,667
Communications and 9/30/97 184,688 40,463
Public Policy
</TABLE>
- --------
(1) Information presented in the Summary Compensation Table includes
overlapping periods, as such the information provided with respect to the
12 month period ended December 31, 1998 includes compensation that also
appears in the information provided with respect to the 12 month period
ended September 30, 1998 and vice versa.
(2) Mr. Ohringer became the Company's Chief Executive Officer on October 1,
1998.
(3) Pursuant to the terms of Mr. Ohringer's employment agreement, $2,000,000
was paid to Mr. Ohringer by the Company on October 1, 1998 to compensate
Mr. Ohringer for certain benefits that he would have been eligible to
receive from his former employer.
[Footnotes continued on following page.]
11
<PAGE>
(4) Mr. Sturm served as Chief Executive Officer of the Company from March 17,
1998 through September 30, 1998. Effective with the close of business on
September 30, 1998, Mr. Sturm resigned his position as Chief Executive
Officer of the Company in order to allow Mr. Ohringer to assume such
position.
(5) The Company pays annual management fees to Corporate Managers, an
affiliate of Mr. Sturm, pursuant to the Management Consulting Services
Agreement between the Company and Corporate Managers, as amended. See
"Certain Relationships and Related Transactions--Equity Investment--
Management Services Agreements."
(6) Mr. Senn resigned from the Company in January 1998.
(7) In connection with Mr. Senn's resignation, Mr. Senn received
approximately $12,231 less applicable federal and state taxes for accrued
vacation days. In addition, pursuant to an employee severance program
adopted in connection with the Equity Investment (as defined below), the
Company paid severance payments to Mr. Senn in an aggregate amount of
$60,212. See "Certain Relationships and Related Transactions--Equity
Investment--Employee Severance Program".
(8) Mr. Lewis resigned from the Company in January 1999.
(9) Mr. Mulroy resigned from the Company in April 1999.
(10) Mr. Randall resigned from the Company in December 1998.
(11) Mr. Cerasoli resigned from the Company in September 1998.
(12) In connection with Mr. Cerasoli's resignation, Mr. Cerasoli received
approximately $24,099 less applicable federal and state taxes for accrued
vacation days. In addition, the Company paid severance payments to Mr.
Cerasoli in an aggregate amount of $35,000.
Option Grants During 1998
The following table sets forth certain information with respect to options
to purchase Series B Common Stock granted during the twelve-month period ended
December 31, 1998 to each of the Named Executive Officers. No stock
appreciation rights were granted to the Named Executive Officers during the
twelve-month period ended December 31, 1998.
<TABLE>
<CAPTION>
Potential Realizable Value at
Number of % of Total Assumed Annual Rates of Stock
Securities Options Price Appreciation for
Underlying Granted to Exercise or Option Term(1)
Options Employees in Base Price per Expiration ------------------------------
Name Granted (#) Fiscal Year(%) Share ($/SH) Date 5% 10%
---- ----------- -------------- -------------- ---------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Sheldon S. Ohringer..... 2,805,000 73.59% $6.00 9/30/05 $ 6,851,500 $ 15,966,909
Donald L. Sturm......... -- N/A N/A N/A N/A N/A
Renney Senn............. -- N/A N/A N/A N/A N/A
John Lewis(2)........... 40,000 1.05% $4.50 6/2/08 $ 150,935 $ 382,498
Dennis M. Mulroy(3)..... 10,000 0.26% $4.50 6/1/08 $ 37,734 $ 95,625
Robert E. Randall(4).... 100,000 2.62% $4.50 6/1/08 $ 377,337 $ 956,246
Robert Cerasoli......... -- N/A N/A N/A N/A N/A
</TABLE>
- --------
(1) The potential realizable values are based on an assumption that the stock
price of the Company's Series B Common Stock will appreciate at the annual
rate shown (compounded annually) from the date of grant until the end of
the option term. These values do not take into account amounts required to
be paid as income taxes under the Internal Revenue Code and any applicable
state laws or option provisions providing for termination of an option
following termination of employment, non-transferability or vesting. These
amounts are calculated based on the requirements promulgated by the
Securities and Exchange Commission and do not reflect the Company's
estimate of future stock price growth, if any, of the shares of the
Company's Series B Common Stock.
(2) Mr. Lewis resigned from the Company in January 1999.
[Footnotes continued on following page.]
12
<PAGE>
(3) Mr. Mulroy resigned from the Company in April 1999.
(4) Mr. Randall resigned from the Company in December 1998.
Options Exercised During 1998 and Option Values
The following table sets forth certain information with respect to the
exercise of options to purchase Series B Common Stock during the twelve-month
period ended December 31, 1998, and the unexercised options held and the value
thereof at that date, for each of the Named Executive Officers.
<TABLE>
<CAPTION>
Value of Unexercised
Shares Number of Securities In-the-Money
Acquired Underlying Unexercised Options
on Value Options at Fiscal Year End(#) at Fiscal Year End($)(2)
Name Exercise(#) Realized($)(1) Exercisable/Unexercisable Exercisable/ Unexercisable
---- ----------- -------------- ----------------------------- --------------------------
<S> <C> <C> <C> <C>
Sheldon S. Ohringer..... 0 0 935,000/1,870,000 $0/$0
Donald L. Sturm......... 0 0 0/0 $0/$0
Renney Senn............. 16,417 $17,074 0/0 $0/$0
John Lewis.............. 0 0 51,617/54,800 $202,251/$156,000
Dennis M. Mulroy........ 5,000 $27,500 38,417/38,000 $162,251/$177,000
Robert E. Randall....... 0 0 36,417/80,000 $ 79,251/$120,000
Robert Cerasoli......... 16,417 $49,251 0/0 0/0
</TABLE>
- --------
(1) Calculated by determining the difference between the fair market value of
the securities underlying the options at the respective date of exercise
as determined by the Board of Directors ($4.04 per share for the shares
acquired by Mr. Senn and $6.00 per share for the shares acquired by Mr.
Mulroy and Mr. Cerasoli) and the exercise price of the options.
(2) Calculated by determining the difference between the fair market value of
the securities underlying the options at December 31, 1998 ($6.00 per
share as determined by the Board of Directors) and the exercise price of
the options.
Stock Option Plans, Stock Purchase Plans and Bonus Program
Stock Option Plans
The Company has three stock option plans currently in place: the 1995 Stock
Option Plan, the 1997 Stock Option Plan (as each such term is defined below)
and The 1999 Equity Incentive Plan of FirstWorld Communications, Inc.
1995 Stock Option Plan. Under the SpectraNet International 1995 Incentive
Stock Option Plan (the "1995 Stock Option Plan") the Company is authorized to
issue incentive stock options ("ISOs") to acquire up to an aggregate of
1,500,000 shares of Series B Common Stock. 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. As of May 1, 1999,
options to purchase an aggregate of 250,200 shares of Series B Common Stock at
prices ranging from $.15 to $4.50 were outstanding under the 1995 Stock Option
Plan.
1997 Stock Option Plan. Under the SpectraNet International 1997 Stock Plan
(the "1997 Stock Option Plan") the Company is authorized to issue an aggregate
of 1,500,000 options to purchase Series B Common
13
<PAGE>
Stock. The 1997 Stock Option Plan provides for the grants of ISOs and
nonqualified stock options ("NQSOs") and the award of stock purchase rights.
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, among other things,
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 and the vesting schedule of such
options. Options awarded under the 1997 Stock Option Plan are nontransferable
and generally expire ten years from the date of grant. Unless otherwise
indicated in the applicable 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. As of May 1, 1999, options to purchase an aggregate of
1,001,351 shares of Series B Common Stock at exercise prices ranging from
$3.00 to $6.00 were outstanding under the 1997 Stock Option Plan.
The 1999 Equity Incentive Plan of FirstWorld Communications, Inc.
For information with respect to The 1999 Equity Incentive Plan of FirstWorld
Communications, Inc., please see Proposal 2 set forth below.
Stock Purchase Plan
For information with respect to the 1998 Stock Purchase Plan of FirstWorld
Communications, Inc., please see Proposal 3 set forth below.
Quarterly Bonus Program of Firstworld Communications, Inc.
For information with respect to the FirstWorld Communications, Inc.
Quarterly Bonus Program, please see Proposal 4 set forth below.
Compensation Committee Membership, Interlocks and Insider Participation
During fiscal 1998, the Company's Compensation Committee (the "Committee")
consisted of Mr. Garland and Ms. Sturm. Ms. Sturm holds membership interests
in the Sturm Entities. As such, Ms. Sturm has an indirect interest in the
various arrangements and relationships between the Company and the Sturm
Entities. Mr. Garland is an officer of ECT. As such, Mr. Garland has an
indirect interest in the arrangements and relationships between the Company
and ECT and its affiliates. For information about these arrangements and
relationships, please see "Certain Relationships and Related Transactions--
Equity Investment."
Employment Contracts
The Company has employment agreements with Messrs. Sheldon S. Ohringer,
David J. Gandini, Jeffrey L. Dykes, Marion K. Jenkins, Douglas L. Kramer,
Scott M. Chase, Paul C. Adams, Theodore E. Glenwright, Andreas Glocker and
Stanley G. Masters.
Sheldon S. Ohringer
The Company entered into an Employment Agreement on September 28, 1998 with
Sheldon S. Ohringer (the "Employment Agreement"), pursuant to which Mr.
Ohringer agreed to join the Company 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
14
<PAGE>
compensate Mr. Ohringer for certain benefits that he would have received from
his previous employer, the Company 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 was paid 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 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 of 1933, as amended (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 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
15
<PAGE>
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 the Company's senior executives according to the plans' terms and
conditions.
Depending on how Mr. Ohringer's employment with the Company 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.
Other Employment Agreements
The Company has employment agreements with, among others, Messrs. Gandini,
Dykes, Jenkins, Kramer, Chase and Adams which generally provide for the
benefits described below.
The employment agreements the Company entered into with certain of the other
key executive officers of the Company provide for annual salaries and
eligibility for a bonus based on a prescribed percentage of each executive's
annual salary. In addition, pursuant to the employment agreements, the Company
typically grants an executive an option to acquire a prescribed number of
shares of Series B Common Stock. The shares subject to the option generally
vest in four equal increments on the first, second, third and fourth
anniversaries of the executive's start date with the Company and have exercise
prices ranging from $4.50 to $7.50 per share. If the Company terminates an
executive's employment during the term of his employment agreement without
"cause"
16
<PAGE>
or such executive terminates his employment with the Company for "good
reason," the executive would generally be entitled to receive a severance
payment from the Company.
In certain instances the employment agreements also provide for cash
payments of up to $500,000 (each, an "Equalization Payment") to compensate an
executive for certain benefits that he would have received from his previous
employer. In some instances these Equalization Payments are payable in three
annual installments. If an Equalization Payment is payable in installments, an
executive 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 such executive's employment other than for cause or the executive
terminates his own employment for good reason prior to the installment date.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Equity Investment
General. On December 30, 1997, the Company completed a private placement of
equity securities to Spectra 3 and ECT (the "Equity Investment"). The Company
issued 5,000,000 shares of newly created Series A Common Stock to each of
Spectra 3 and ECT 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, ECT, 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 ECT 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 Spectra 1
and Spectra 2, entities that owned equity securities of the Company prior to
the Equity Investment. See "Securities Ownership of Certain Beneficial Owners
and Management." Spectra 1, Spectra 2 and Spectra 3 are referred to herein as
the "Sturm Entities" and Spectra 3, ECT 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 ECT, 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 ECT fully exercised their option
to make an additional $20,000,000 investment concurrently with the closing of
the offering of 13% Senior Discount Notes due 2008 and accompanying warrants
the Company completed in April 1998.
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.
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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 certain other prior investors to
certain demand and piggyback registration rights. In addition, the Sturm
Entities and ECT were granted rights of first refusal that permit them to
maintain their respective percentage ownership interest in the Company with
respect to certain future equity issuances. Pursuant to the terms of his
Employment Agreement, Mr. Ohringer was also granted a right to maintain his
percentage ownership interest in the Company with respect to certain future
equity issuances. The Sturm Entities, ECT and Mr. Ohringer are the only
entities having a right of first refusal or other preemptive right on future
equity financing transactions.
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. In addition,
in connection with the hiring of Mr. Ohringer, as the Company's President and
Chief Executive Officer in October 1998, the Company entered into an Amendment
to the Amended and Restated Investor Rights Agreement to coordinate with Mr.
Ohringer's Employment 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 ECT 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 ECT--C. Kevin Garland and Rodney Malcolm (Mr.
Malcolm resigned in April 1999 and was replaced by Mr. Horn); one management
representative--Robert E.
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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 ECT, 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 ECT, the Sturm Entities and the Company (and each
of their respective affiliates) with respect to their existing 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 energyrelated
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 ECT entered into a Business Opportunity Agreement to address the fact that
ECT 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, ECT advised the
Company and the Sturm Entities that (a) FirstPoint Communications, Inc. and
its affiliates ("FirstPoint"), which are affiliates of ECT, 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 ECT 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 ECT,
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 ECT 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) ECT, 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) ECT, 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 ECT. The Business Opportunity Agreement also
provides that the Company would, during an "Exclusivity Period" (as defined
below), grant ECT 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 ECT 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 ECT notice of any
Joint Application Opportunity that the Company desires to pursue anywhere in
the United States. If ECT 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 ECT. If ECT elects not to
participate in the Joint Application Opportunity, then the Company is free to
pursue independently the telecommunications portion of such Joint
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Application Opportunity without the participation of ECT, 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
ECT 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 ECT 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 ECT with respect to the
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 ECT (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 ECT, (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 ECT.
Transaction Fees and Expenses. The Company paid the Sturm Entities and ECT 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 ECT). Spectra 3 and ECT 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 ECT). In
addition, the Company reimbursed all reasonable costs and expenses of the
Sturm Entities and ECT incurred in connection with the Stock Purchase
Agreement, up to a maximum of $50,000 for the Sturm Entities and $50,000 for
ECT, plus the $90,000 of required filing fees under the Hart-Scott-Rodino Act.
Management Services Agreements. The Company executed Management Consulting
Services Agreements with Corporate Managers, LLC, a Colorado limited liability
company and an affiliate of the Sturm Entities, and ECT 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 amended the Management Consulting
Services Agreement with Corporate Managers, LLC in March 1998 to provide for
an annual management fee of $620,000 plus out of pocket expenses because Mr.
Sturm had taken a more active management role with the Company than originally
anticipated. On October 1, 1998, the Company further amended the Management
Consulting Services Agreement to reduce the compensation payable to Corporate
Managers, LLC thereunder to $500,000 per year. This reduction was intended to
reflect the reduced role Mr. Sturm was expected to take effective with the
retention of Mr. Ohringer as the Company's new Chief Executive Officer and
President. Corporate Managers, LLC and ECT each has the right in its
discretion to terminate its Management Consulting Services Agreement with the
Company.
Subsequent Transfer of Certain Interests and Obligations of ECT
In December 1998, in connection with a reorganization of ECT's asset
portfolio, ECT transferred all of the Company securities it held as of such
date and its rights and obligations under the Amended and Restated Investor
Rights Agreement and the Securityholders Agreement (collectively, the
"Transferred Interests") to one of its affiliates, Ponderosa Assets, L.P., a
Delaware limited partnership ("Ponderosa"), as consideration for a limited
partnership interest in Ponderosa. Ponderosa subsequently transferred the
Transferred Interests to Sundance, another affiliate of ECT, in consideration
of a limited partnership interest in Sundance. ECT continues to be a party to
the Business Opportunity Agreement and the Management Consulting Services
Agreement.
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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Indemnification Obligation
The Company has agreed to make advances to Mr. Ohringer to cover his
expenses in connection with a lawsuit filed against him by ICG Telecom Group,
Inc. ("ICG"), Mr. Ohringer's former employer. ICG's complaint alleges that Mr.
Ohringer breached fiduciary duties he owed to ICG by attempting to induce ICG
employees to leave ICG and accept positions with the Company both before and
after Mr. Ohringer resigned from ICG. ICG's complaint seeks unspecified
consequential and exemplary damages. The Company is advancing Mr. Ohringer's
expenses and may be required to indemnify him pursuant to the Indemnification
Agreement dated as of March 1, 1999 between the Company and Mr. Ohringer and
pursuant to the indemnification provisions contained in the Company's
certificate of incorporation and bylaws. To date, the Company has made no
advances to Mr. Ohringer to cover his legal expenses. Although Mr. Ohringer
intends to vigorously defend himself against the claims made by ICG, the
Company may be required to indemnify Mr. Ohringer for additional expenses as
well as amounts that Mr. Ohringer may be required to pay in settlement of the
claims made by ICG or upon a judgment in favor of ICG.
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PROPOSAL 2
APPROVAL OF THE ADOPTION OF
THE 1999 EQUITY INCENTIVE PLAN OF FIRSTWORLD COMMUNICATIONS, INC.
At the Annual Meeting, the stockholders of the Company will be asked to
consider and vote upon a proposal to approve the adoption of The 1999 Equity
Incentive Plan of FirstWorld Communications, Inc. (the "Incentive Plan")
described herein. The Incentive Plan was adopted by the Board of Directors on
March 8, 1999, subject to approval by the stockholders at the Annual Meeting.
General Nature and Purposes of the Incentive Plan
The principal purposes of the Incentive Plan are to provide incentives for
key employees and consultants of the Company through granting of options and
stock appreciation rights ("SARs," and together with options, "Awards"),
thereby stimulating their personal and active interest in the Company's
development and financial success, and inducing them to remain in the
Company's employ.
A brief description of the principal features of the Incentive Plan follows,
but the description is qualified in its entirety by reference to the Incentive
Plan itself, a copy of which is included as Exhibit A to this Proxy Statement.
Administration of the Plan
The Incentive Plan will be administered by the Compensation Committee of the
Company's Board of Directors or another committee of the Board of Directors
assuming the functions of the Compensation Committee under the Incentive Plan
(the "Committee") with respect to options and other awards granted to
employees or consultants. The Committee will consist of at least two members
of the Board of Directors, each of whom is a "non-employee director" for
purposes of Rule 16b-3 ("Rule 16b-3") under the Securities Exchange Act of
1934, as amended (the "Exchange Act") and an outside director for purposes of
Section 162(m) of the Code. Subject to the terms and conditions of the
Incentive Plan and the approval of the Board of Directors, the Committee has
the authority to select the persons to whom awards are to be made, to
determine the number of shares to be subject thereto and the terms and
conditions thereof, and to make all other determinations and to take all other
actions necessary or advisable for the administration of the Incentive Plan.
The Committee is also authorized to adopt, amend, interpret and revoke rules
relating to the administration of the Incentive Plan. Pursuant to authority
granted under the Incentive Plan, the Board of Directors has elected to
administer the Incentive Plan and has assumed the rights and duties of the
Committee under the Incentive Plan except with respect to matters which under
Rule 16b-3 or Section 162(m) of the Code, or any regulations or rules issued
thereunder, are required to be determined in the sole discretion of the
Committee.
Securities Subject to the Incentive Plan
The aggregate number of shares of Series B Common Stock (or the equivalent
in other equity securities) which may be issued upon exercise of options will
not exceed 5,000,000. Furthermore, the maximum number of shares which may be
subject to options under the Incentive Plan to any individual in any calendar
year cannot exceed 500,000.
The shares available under the Incentive Plan upon exercise of stock options
may be either previously unissued shares or treasury shares. The Committee has
the discretion to make appropriate adjustments in the number and kind of
securities subject to the Incentive Plan and to outstanding Awards thereunder
to reflect dividends or other distributions; a recapitalization,
reclassification, reorganization, merger or consolidation of the Company; the
split-up, spin-off, combination, repurchase, liquidation or dissolution of the
Company; or the disposition of all or substantially all of the assets of the
Company or the exchange of Series B Common Stock or other securities of the
Company; or other similar corporate transaction or event (an "extraordinary
corporate event").
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At May 1, 1999, options covering an aggregate of 1,738,250 shares of the
Company's Series B Common Stock were outstanding under the Incentive Plan. In
addition, as of May 1, 1999, SARs covering an aggregate of 278,550 shares of
the Company's Series B Common Stock were outstanding under the Incentive Plan.
3,261,750 shares remained available for future grant under the Incentive Plan,
assuming stockholder approval of the adoption of the Incentive Plan.
If any portion of a stock option terminates or lapses unexercised, or is
canceled upon grant of a new option (which may be at a higher or lower
exercise price than the option so canceled), the shares which were subject to
the unexercised portion of such option will continue to be available for
issuance under the Incentive Plan.
Term of Incentive Plan; Amendments
The Incentive Plan will expire on March 8, 2004, unless earlier terminated.
Amendments of the Incentive Plan to increase the number of shares as to which
Awards may be made (except for adjustments resulting from stock splits and the
like, and mergers, consolidations and other extraordinary corporate
transactions) require the approval of the Company's stockholders. In all other
respects the Incentive Plan can be amended, modified, suspended or terminated
by the Committee or the Board of Directors, unless such action would otherwise
require stockholder approval as a matter of applicable law, regulation or
rule. Amendments of the Incentive Plan will not, without the consent of the
participant, affect such person's rights under an Award previously awarded,
unless the Award agreement governing such Award itself otherwise expressly so
provides.
Eligibility
Options or SARs under the Incentive Plan may be granted to individuals who
are then officers or other employees of the Company or any of its present or
future subsidiaries. Such Awards also may be granted to consultants of the
Company selected by the Committee for participation in the Incentive Plan.
Approximately 390 employees are eligible to participate in the Incentive Plan.
More than one option or SAR may be granted to an employee or consultant, but
to the extent the aggregate fair market value of stock with respect to which
ISOs (as defined herein) awarded under the Incentive Plan and all other
incentive stock option plans of the Company (determined without regard to the
vesting limitations contained in Section 422(d) of the Code) are exercisable
for the first time by an optionee during any calendar year exceeds $100,000,
such options will be taxed as nonqualified stock options. For this purpose,
the fair market value of stock will be determined as of the time the option is
granted. Non-employee directors of the Company and its subsidiaries may be
granted NQSOs (as defined herein) in accordance with the Incentive Plan.
Payment for Shares
The exercise or purchase price for all options or SARs, together with any
applicable tax required to be withheld, must be paid in full in cash at the
time of exercise or purchase; provided, however, with respect to amounts
payable in connection with the exercise of options the Committee may (i) allow
payment, in whole or in part, through the surrender of shares of Series B
Common Stock then issuable upon exercise of the option having a Fair Market
Value (as defined in the Incentive Plan) on the date of option exercise equal
to the aggregate exercise price of the option or exercised portion thereof;
(ii) allow payment, in whole or in part, through the delivery of a notice that
the optionee has placed a market sell order with a broker with respect to
shares of Series B Common Stock then issuable upon exercise of the option, and
that the broker has been directed to pay a sufficient portion of the net
proceeds of the sale to the Company in satisfaction of the option exercise
price and any applicable withholding or other employment taxes; or (iii) allow
payment through any combination of the consideration provided in the foregoing
clauses (i) and (ii).
Non-Assignability of Options
No option granted under the Incentive Plan may be assigned or transferred by
the grantee, except by will, the laws of descent and distributions, although
the shares underlying such Awards may be transferred if all
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applicable restrictions have lapsed. During the lifetime of the holder of any
option, the option may be exercised only by the holder.
Awards Under the Incentive Plan
The Incentive Plan provides that the Committee may grant or issue stock
options ("Options") and SARs. Descriptions of the different types of Options
and SARs that may be awarded under the Incentive Plan are set forth below.
Incentive Stock Options ("ISOs"). ISOs will be designed to comply with
applicable provisions of the Code and will be subject to certain restrictions
contained in the Code. Among such restrictions, ISOs must have an exercise
price not less than the Fair Market Value of a share of Series B Common Stock
on the date of grant, may only be granted to employees, must expire within a
specified period of time following the optionee's termination of employment,
and must be exercised within seven years after the date of grant; but may be
subsequently modified to disqualify them from treatment as ISOs. In the case
of an ISO granted to an individual who owns (or is deemed to own) at least 10%
of the total combined voting power of all classes of stock of the Company, the
Incentive Plan provides that the exercise price for such ISO must be at least
110% of the fair market value of a share of Series B Common Stock on the date
of grant and the ISO must expire upon the fifth anniversary of the date of its
grant.
Nonqualified Stock Options ("NQSOs"). NQSOs will provide for the right to
purchase Series B Common Stock at a specified price which, except with respect
to NQSOs intended to qualify as performance-based compensation under Section
162(m) of the Code or NQSOs issued to persons possessing more than 10% of the
total combined voting power of all classes of stock of the Company, may be up
to 15% less than Fair Market Value on the date of grant (but not less than par
value), and usually will become exercisable (in the discretion of the
Committee) in one or more installments after the grant date, subject to the
participant's continued provision of services to the Company and/or subject to
the satisfaction of individual or Company performance targets established by
the Committee. NQSOs may be granted for any term specified by the Committee,
provided that such term does not exceed seven years from the date of grant.
SARs. The Committee may grant SARs having terms and conditions consistent
with the Incentive PlanIn to employees or consultants in connection with
Options or separately. SARs granted by the Committee in connection with
Options entitle the optionee to surrender unexercised to the Company a portion
of the Option to which the SAR relates in exchange for an amount determined by
multiplying (i) the difference obtained by subtracting the Option exercise
price from the Fair Market Value of a share of Series B Common Stock on the
date of exercise of the SAR by (ii) the number of shares of Series B Common
Stock with respect to which the SAR has been exercised. SARs granted by the
Committee independent of Options granted under the Incentive Plan entitle the
grantee to exercise all or a specified portion of the SAR (at the exercise
price per share of Series B Common Stock subject to such SAR set by the
Committee) in exchange for an amount determined by multiplying (i) the
difference obtained by subtracting the SAR purchase price from the Fair Market
Value of a share of Series B Common Stock on the date of exercise of the SAR
by (ii) the number of shares of Series B Common Stock with respect to which
the SAR has been exercised.
The Incentive Plan provides that the Board of Directors has the right, but
not the obligation, to convert SARs granted under the Incentive Plan from SARs
to Options to purchase Series B Common Stock of the Company. The Incentive
Plan further provides that in any conversion of SARs to Options (i) the
exercise price of the Options shall be equal to the initial price as stated in
the Award agreement governing the SAR and (ii) the option exercise period
shall equal the period of exercisability as provided in the Award agreement
governing the SAR.
Except as required by Section 162(m) of the Code with respect to an SAR
intended to qualify as performance-based compensation as described in Section
162(m) of the Code, there are no restrictions specified in the Incentive Plan
on the exercise of SARs or the amount of gain realizable therefrom, although
restrictions
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may be imposed by the Committee in the SAR agreements. Payments to
participants in the Incentive Plan upon the exercise of an SAR must be in
cash.
General Terms of Awards Under the Incentive Plan
Agreements; No Right of Continued Employment. Each Award will be set forth
in a separate agreement with the person receiving the Award and will indicate
the type, terms and conditions of the Award. The dates on which options or
other Awards under the Incentive Plan first become exercisable and on which
they expire will be set forth in individual Award agreements setting forth the
terms of the Awards. Such agreements generally will provide that options and
other Awards expire within a certain period after the termination of the
participant's status as an employee or consultant.
Nothing in the Incentive Plan or in any an Award agreement will confer upon
any optionee any right to continue in the employ of, or as a consultant for,
the Company or any subsidiary, or will interfere with or restrict in any way
the rights of the Company or any subsidiary to discharge any optionee at any
time for any reason whatsoever, with or without cause.
Adjustments Upon Change in Capitalization. The Committee has the discretion
to make appropriate adjustments in the number and kind of securities subject
to the Incentive Plan and to outstanding awards thereunder to reflect
dividends or other distributions; a recapitalization, reclassification, stock
split, reverse stock split, or reorganization, merger or consolidation of the
Company; the split-up, spin-off, combination, repurchase, liquidation or
dissolution of the Company; or the disposition of all or substantially all of
the assets of the Company or the exchange of Series B Common Stock or other
securities of the Company; or other similar corporate transaction or event (an
"extraordinary corporate event").
Extraordinary Corporate Events. The Committee (or the Board of Directors
with respect to Director Options) has discretion under the Incentive Plan to
provide that options and other rights to acquire Series B Common Stock will
expire at specified times following, or become exercisable in full upon, the
occurrence of certain specified "extraordinary corporate events;" but in such
event the Committee (or the Board of Directors with respect to Director
Options) may also give optionees and other grantees the right to exercise
their outstanding options or rights in full during some period prior to such
event, even though the options or other Awards have not yet become fully
exercisable, and the Committee (or the Board of Directors with respect to
Director Options) may also provide that all restrictions imposed on some or
all shares of restricted stock and/or deferred stock shall lapse, and some or
all shares of restricted stock may cease to be subject to the Company's right
to repurchase after such event.
Change of Control. Generally, in the event of a Change of Control (as
defined in the Incentive Plan), the Board of Directors shall provide that all
options and SARs granted under the Incentive Plan shall become fully
exercisable or that the resulting or surviving corporation in any merger or
consolidation associated with such Change of Control will assume such options
and SARs or substitute an equivalent option or right on terms and conditions
which shall substantially preserve to each holder the rights and benefits held
by such holder prior to the Change of Control.
Right of First Refusal. Before an optionee transfers, assigns or sells
shares of Series B Common Stock acquired through the exercise of an option
under the Incentive Plan ("Option Shares"), such optionee must offer to sell
such Option Shares to the Company in accordance with the terms and conditions
of Section 6.2 of the Incentive Plan. Prior to consummating the proposed
transfer, the optionee must provide written notice of the proposed transfer to
the Company and allow the Company 15 days to determine whether to purchase all
of the Option Shares upon the terms and conditions contained in the purchase
offer received by the optionee (the "Purchase Offer") and an additional 15
days to consummate such purchase if the Company notifies the optionee of its
intent to purchase such shares within the first 15 day period. If the Company
does not elect to purchase all of the Option Shares, then the optionee shall
have 30 days after the termination of the 15 day Company purchase period to
transfer the Option Shares to the proposed acquiror. This right of first
refusal does not apply to transfers
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to Related Persons (as defined in the Incentive Plan) if such Related Person
transferee agrees to be bound by the terms of the Incentive Plan.
The Company's right to purchase Option Shares terminates upon the completion
of an offering of its equity securities on Form S-1 (or a successor form)
which results in the public owning Series B Common Stock possessing at least
20% of the voting power of the Series B Common Stock.
Other Restrictions on Transfer. Options may not be sold, pledged, assigned
or transferred in any manner other than by will or by the laws of descent or
distribution, unless and until such options have been exercised, or the shares
underlying such options have been issued, and all restrictions applicable to
such shares have lapsed. In addition, the Committee, in its discretion, may
impose such restrictions on the transferability of the shares purchasable upon
the exercise of an option as it deems appropriate. Any such other restriction
shall be set forth in the respective stock option agreement and may be
referred to on the certificates evidencing such shares.
Notice of Disposition. The Committee may require the employee to give the
Company prompt notice of any disposition of shares of stock, acquired by
exercise of an ISO, within two years from the date of granting such option or
one year after the transfer of such shares to such employee. Certificates
evidencing shares acquired by exercise of an ISO shall refer to such
requirement to give prompt notice of disposition.
Withholding Tax Obligations. As a condition to the issuance or delivery of
stock or payment of other compensation pursuant to the exercise or lapse of
restrictions of any option or other Award granted under the Incentive Plan,
the Company requires participants to discharge applicable withholding tax
obligations. Shares held by or to be issued to a participant may also be used
to discharge tax withholding obligations related to exercise of options or
receipt of other Awards, subject to the discretion of the Committee to
disapprove such use.
Securities Law
The Incentive Plan is intended to conform to the extent necessary with all
provisions of the Securities Act and the Exchange Act and any and all
regulations and rules promulgated by the Securities and Exchange Commission
thereunder, including without limitation Rule 16b-3. The Incentive Plan will
be administered, and options will be granted and may be exercised, only in
such a manner as to conform to such laws, rules and regulations. To the extent
permitted by applicable law, the Incentive Plan and options granted thereunder
shall be deemed amended to the extent necessary to conform to such laws, rules
and regulations.
Certain Federal Income Tax Consequences With Respect to the Incentive Plan
The tax consequences of the Incentive Plan under current federal law are
summarized in the following discussion which deals with the general tax
principles applicable to the Incentive Plan, and is intended for general
information only. Alternative minimum tax and state and local income taxes are
not discussed. Tax laws are complex and subject to change and may vary
depending on individual circumstances and from locality to locality. The tax
information summarized is not tax advice.
ISOs. In general, holders of ISOs will not realize income for federal income
tax purposes upon either the grant of the ISO or its exercise. However, the
amount by which the fair market value of the shares purchased upon exercise of
the ISO exceeds the exercise price will be an "item of adjustment" for
purposes of alternative minimum tax. Upon the sale or other taxable
disposition of the shares purchased upon exercise of an ISO, long-term capital
gain will normally be recognized in the full amount of the difference between
the amount realized and the exercise price if no disposition of the shares has
taken place within either (1) one year from the date of transfer of the shares
to the optionee upon exercise or (2) two years from the date of grant of the
ISO. If the shares are sold or otherwise disposed of before the end of such
one- or two-year periods, the difference between the exercise price and the
fair market value of the shares on the date on which the ISO is exercised will
be taxed as ordinary income; the balance of the gain, if any, will be taxed as
capital gain. If there is a disposition of the
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shares before the expiration of such one- or two-year periods and the amount
realized is less than the fair market value of the shares at the date of
exercise, the optionee's ordinary income is limited to the amount realized
less the exercise price paid. The Company (or a subsidiary of the Company
which employs the optionee) will be entitled to a tax deduction in regard to
an ISO only to the extent the optionee has ordinary income upon sale or other
disposition of the shares received upon exercise of ISO.
The Committee may permit a holder exercising an ISO to pay for the shares of
stock purchased upon exercise by having a portion of the shares of stock
purchased upon exercise sold by the holder's broker and the proceeds of the
sale paid to the Company. The sale of the shares of stock by the holder's
broker will be a disposition of the shares before the end of the one-year or
two-year holding period. As a result, the difference between the exercise
price of the shares of stock sold by the broker and the fair market value of
the shares of stock, determined on the date on which the incentive stock
option is exercised, will be taxed as ordinary income; the balance of any gain
will be taxed as capital gain. If the amount realized on the sale of the stock
sold by the broker is less than the fair market value of the shares on the
date of exercise, the holder's ordinary income is limited to the amount
realized less the exercise price paid. The Company (or a subsidiary of the
Company which employs the optionee) will be entitled to a tax deduction to the
extent the optionee has ordinary income upon the sale of the shares of stock
sold by the holder's broker.
NQSOs. In general, a holder of a NQSO will not realize income for federal
income tax purposes as a result of the grant of such NQSO, but normally will
realize compensation income upon exercise of the NQSO to the extent that the
fair market value of the shares on the date of exercise of the NQSO exceeds
the aggregate option exercise price paid. The Company (or a subsidiary of the
Company which employs the optionee) will be entitled to a deduction in the
same amount at the time of exercise of the NQSO, provided that the Company (or
a subsidiary of the Company which employs the optionee) reports on a timely
basis the taxes on the ordinary income realized by the optionee upon the
exercise of a NQSO.
A holder exercising a NQSO may elect to pay amounts required to be withheld
under federal, state or local law in connection with the exercise of the
option by having a portion of the shares purchased upon exercise retained by
the Company. The shares of stock retained will be treated as sold to the
Company and the holder generally will not realize a gain on the sale.
A holder exercising a NQSO may elect to pay for the shares of stock
purchased upon exercise and all applicable withholding taxes by having a
portion of the shares of stock purchased upon exercise sold by the holder's
broker and the proceeds of the sale paid to the Company. The holder will
realize additional gain or loss on the sale of the shares of stock by the
holder's broker based on the difference between the fair market value of the
shares of stock on the exercise date and the sale price.
SARs. A holder of an SAR will not realize income for federal income tax
purposes as a result of the grant of such SAR, but upon exercise of the SAR
normally will realize compensation income in the year of such exercise equal
to the fair market value of the cash received upon such exercise. The Company
(or a subsidiary of the Company which employs the holder) will be entitled to
a deduction in the same amount at the time of exercise of the SAR.
A holder of a SAR will not realize income for federal income tax purposes as
a result of the conversion of an SAR into an option to purchase shares of
Series B Common Stock. A holder who receives an ISO upon conversion of a SAR
will be subject to the rules described above under the caption "--ISOs." A
holder who receives a NQSO upon conversion of an SAR will be subject to the
rules described above under the caption "--NQSOs."
Options and SARs Granted Under the Incentive Plan
As of May 1, 1999, options to purchase an aggregate of 1,150,00 shares of
Series B Common Stock have been granted under the Incentive Plan to the
Company's current executive officers as a group. As of May 1,
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1999, no options to purchase shares of Series B Common Stock have been granted
to any of the Named Executive Officers. As of May 1, 1999, no options to
purchase shares of Series B Common Stock have been granted to the non-employee
directors of the Company (Messrs. Sturm, Garland, Spitzenberger, Horn and
Stiska and Ms. Sturm) under the Incentive Plan. As of May 1, 1999, options to
purchase an aggregate of 613,250 shares of Series B Common Stock have been
granted under the Incentive Plan to all employees, including all current
officers who are not executive officers, as a group.
As of May 1, 1999, no SARs have been awarded under the Incentive Plan to (i)
any of the current executive officers of the Company, (ii) any of the Named
Executive Officers or (iii) to the non-employee directors of the Company. As
of May 1, 1999, SARs covering 278,550 shares of Series B Common Stock have
been granted under the Incentive Plan to all employees, including all current
officers who are not executive officers, as a group.
Vote Required
The affirmative vote of stockholders holding a majority of the voting power
of the stock represented and entitled to vote, in person or by proxy, at the
Annual Meeting is required to approve the adoption of the Incentive Plan.
The Company's Board of Directors Unanimously Recommends a Vote "FOR" the
Approval of the Adoption of The 1999 Equity Incentive Plan of FirstWorld
Communications, Inc. Proxies Solicited by the Board of Directors Will be so
Voted Unless Stockholders Specify Otherwise on the Accompanying Proxy.
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PROPOSAL 3
APPROVAL OF THE ADOPTION OF
THE 1998 STOCK PURCHASE PLAN OF FIRSTWORLD COMMUNICATIONS, INC.
At the Annual Meeting, the stockholders of the Company will be asked to
consider and vote upon a proposal to approve the adoption of the 1998 Stock
Purchase Plan of FirstWorld Communications, Inc. (the "Stock Purchase Plan")
described herein. The Stock Purchase Plan was adopted by the Board of
Directors on September 18, 1998, subject to approval by the stockholders at
the Annual Meeting.
General Nature and Purposes of the Stock Purchase Plan
The purposes of the Stock Purchase Plan are to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentive to employees and to promote the success of the Company's
business.
A brief description of the principal features of the Stock Purchase Plan
follows, but the description is qualified in its entirety by reference to the
Stock Purchase Plan itself, a copy of which is included as Exhibit B to this
Proxy Statement.
Administration of the Plan
The Stock Purchase Plan is administered by the Compensation Committee or by
another committee (the "Committee") appointed by the Board. The composition of
the Committee must at all times comply with the applicable requirements
relating to the administration of the Stock Purchase Plan under U.S. state
corporate laws, U.S. federal and state securities laws, the Internal Revenue
Code of 1986, as amended (the "Code"), any stock exchange or quotation system
on which the Series B Common Stock is listed or quoted and the applicable laws
of any other country or jurisdiction where stock purchase rights may be
granted under the Stock Purchase Plan.
Stock Purchase Rights
Under the Stock Purchase Plan, the Committee may grant rights to purchase
(each, a "Stock Purchase Right") an aggregate of 500,000 shares of Series B
Common Stock to employees, officers or directors of the Company. The Stock
Purchase Plan allows for up to 50% of the purchase price of any stock
purchased thereunder to be paid in the form of a promissory note. If the
offeree elects to pay a portion of the purchase price with a promissory note,
such offeree must also pledge the shares acquired with the proceeds of the
promissory note to secure the promissory note.
Powers of the Compensation Committee
The Committee has authority to select the offerees to whom Stock Purchase
Rights may be granted under the Stock Purchase Plan, to determine the number
of shares to be covered by each such award granted thereunder, to approve the
form and determine the terms and conditions of the agreement for use in
connection with awards made under the Stock Purchase Plan, to prescribe, amend
and rescind rules and regulations relating to the Stock Purchase Plan, to
construe and interpret the terms of the Stock Purchase Plan and awards granted
pursuant to the Stock Purchase Plan and to make all other determinations
necessary for administration of the Stock Purchase Plan.
Repurchase Option
Unless the Committee determines otherwise, the agreement entered into
between the offeree and the Company authorizing the Stock Purchase Right shall
grant the Company a repurchase option exercisable upon the voluntary or
involuntary termination of the purchaser's services with the Company for any
reason (including death or disability). The purchase price for shares
repurchased pursuant to such agreement shall be the original
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price paid by the purchaser and may be paid, in whole or in part, by
cancellation of any indebtedness of the purchaser to the Company. The
repurchase option shall lapse at such rate as the Committee may determine,
provided, that in any event, the repurchase option shall in no case lapse at a
rate of less than 20% per year over five (5) years from the date of purchase.
Rights as a Stockholder
Once the Stock Purchase Right is exercised, the purchaser shall have rights
equivalent to those of a stockholder and shall be a stockholder when his or
her purchase is entered upon the records of the duly authorized transfer agent
of the Company.
No Right to Continued Employment
Neither the Stock Purchase Plan nor the grant of any Stock Purchase Right
thereunder shall confer upon any offeree any right with respect to continuing
the offeree's employment relationship with the Company, nor shall it interfere
in any way with his or her right or the Company's right to terminate such
relationship at any time, with or without cause.
Adjustments Upon Changes in Capitalization
Subject to any required action by the stockholders of the Company, the
number of shares of Series B Common Stock covered by each outstanding Stock
Purchase Right, and the number of shares of Series B Common Stock which have
been authorized for issuance under the Stock Purchase Plan but as to which no
Stock Purchase Rights have yet been granted or which have been returned to the
Stock Purchase Plan upon cancellation or expiration of a Stock Purchase Right,
as well as the price per share of Series B Common Stock covered by each
outstanding Stock Purchase Right, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Series B Common Stock
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Series B Common Stock, or any other increase or
decrease in the number of issued shares of Series B Common Stock effected
without receipt of consideration by the Company. Such adjustment shall be made
by the Board of Directors, whose determination in that respect shall be final,
binding and conclusive.
In the event of a proposed dissolution or liquidation of the Company, the
Committee shall notify each offeree as soon as practicable prior to the
effective date of such proposed transaction. The Committee in its discretion
may provide for an offeree to have the right to exercise his or her Stock
Purchase Right until fifteen (15) days prior to such transaction as to all of
the Series B Common Stock covered thereby, including shares as to which the
Stock Purchase Right would not otherwise be exercisable. In addition, the
Committee may provide that any Company repurchase option applicable to any
shares purchased upon exercise of a Stock Purchase Right shall lapse as to all
such shares, provided the proposed dissolution or liquidation takes place at
the time and in the manner contemplated. To the extent it has not been
previously exercised, a Stock Purchase Right will terminate immediately prior
to the consummation of such proposed action.
In the event of a merger of the Company with or into another corporation (or
similar business organization), or the sale of substantially all of the assets
of the Company, each outstanding Stock Purchase Right shall be assumed or an
equivalent right substituted by the successor corporation or a parent or
subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the Stock Purchase Right, any
shares theretofore not fully exercisable shall accelerate and the offeree
shall have the right to exercise the Stock Purchase Right as to all shares
subject to such Stock Purchase Right, including shares as to which it would
not otherwise be exercisable. If a Stock Purchase Right becomes fully
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Committee shall notify the offeree in writing or
electronically that the Stock Purchase Right shall be fully exercisable for a
period of fifteen (15) days from the date of such notice, and the Stock
Purchase Right shall terminate upon the expiration of such period.
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Compliance with Law
Shares shall not be issued pursuant to the exercise of a Stock Purchase
Right unless the exercise of such Stock Purchase Right and the issuance and
delivery of such shares complies with the applicable requirements relating to
the administration of the Stock Purchase Plan under U.S. state corporate laws,
U.S. federal and state securities laws, the Code, any stock exchange or
quotation system on which the Series B Common Stock is listed or quoted and
the applicable laws of any other country or jurisdiction where Stock Purchase
Rights may also be granted under the Stock Purchase Plan and is further
subject to the approval of counsel for the Company with respect to such
compliance.
Amendment; Termination
The Board of Directors may at any time amend, alter, suspend or terminate
the Stock Purchase Plan. Notwithstanding the foregoing, the Board of Directors
shall obtain stockholder approval of any amendment to the Stock Purchase Plan
to the extent necessary and desirable to comply with the applicable
requirements relating to the administration of the Stock Purchase Plan under
U.S. state corporate laws, U.S. federal and state securities laws, the Code,
any stock exchange or quotation system on which the Series B Common Stock is
listed or quoted and the applicable laws of any other country or jurisdiction
where Stock Purchase Rights may also be granted under the Stock Purchase Plan.
No amendment, alteration, suspension or termination of the Stock Purchase Plan
shall impair the rights of any offeree, unless mutually agreed to by the
offeree and the Committee, which agreement must be in writing and signed by
the offeree and the Company. Termination of the Stock Purchase Plan shall not
affect the Committee's ability to exercise the powers granted to it hereunder
with respect to Stock Purchase Rights granted under the Stock Purchase Plan
prior to the date of such termination.
Certain Federal Income Tax Consequences With Respect to the Stock Purchase
Plan
A recipient of a Stock Purchase Right will not recognize taxable income at
the time of grant, and the Company will not be entitled to a deduction at that
time. After stockholder approval of the Stock Purchase Plan has been obtained,
upon the purchase of Series B Common Stock pursuant to a Stock Purchase Right
by delivery of a fully recourse promissory note or for cash, the purchaser
will recognize ordinary income at the date of purchase equal to the excess, if
any, of the fair market value of the Series B Common Stock purchased over the
purchase price therefor and the Company will be entitled to a deduction for
the same amount.
Prior to the time that stockholder approval of the Stock Purchase Plan is
obtained, upon the purchase of Series B Common Stock under the Stock Purchase
Plan pursuant to a Stock Purchase Right by delivery of a fully recourse
promissory note or for cash, the purchaser will not recognize taxable income
upon such purchase and the Company generally will not then be entitled to a
deduction, unless an election is made under Section 83(b) of the Code.
However, when stockholder approval of the Stock Purchase Plan is obtained,
such that shares of Series B Common Stock are no longer subject to a
substantial risk of forfeiture, the purchaser generally will recognize
ordinary income and the Company generally will be entitled to a deduction for
an amount equal to the excess, if any, of the fair market value of the Series
B Common Stock purchased as of the date stockholder approval of the Stock
Purchase Plan is obtained over the purchase price therefor. If an election
under Section 83(b) with respect to Series B Common Stock purchased pursuant
to a Stock Purchase Right by delivery of a fully recourse promissory note or
for cash is made prior to the time stockholder approval of the Stock Purchase
Plan is obtained, the purchaser generally will recognize ordinary income at
the date of purchase equal to the excess, if any, of the fair market value of
the Series B Common Stock purchased as of the date of purchase over the
purchase price therefor and the Company will be entitled to a deduction for
the same amount.
The federal income tax consequences of the purchase of Series B Common Stock
pursuant to a Stock Purchase Right by delivery of a non-recourse or partially
recourse promissory note are less clear. Regulations promulgated under Section
83 provide that if the purchase price for property transferred in connection
with the performance of services is an amount paid by indebtedness secured by
the property on which there is no personal liability to pay all or a
substantial part of such indebtedness, such a transaction may be treated for
federal income tax purposes in the same manner as a grant of a nonqualified
stock option. In such event, the purchase of Series B
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Common Stock pursuant to a Stock Purchase Right would be taxable as if the
Stock Purchase Right were an option, with the option being treated as being
exercised at the time of payment by the purchaser of any non-recourse portion
of the promissory note. A purchaser of Series B Common Stock pursuant to a
Stock Purchase Right by delivery of a non-recourse or partially recourse
promissory note may not be eligible to make an election under Section 83(b)
with respect to the Series B Common Stock purchased.
Stock Purchase Rights Granted Under the Stock Purchase Plan
In September 1998, the Company offered Stock Purchase Rights to purchase an
aggregate of 300,000 shares of Series B Common Stock to 17 offerees. Robert E.
Randall, a former Executive Vice President and former acting Chief Financial
Officer of the Company, received 40,000 Stock Purchase Rights; John Lewis, the
former Senior Vice President, Network and Operations of the Company, received
25,000 Stock Purchase Rights; and Dennis M. Mulroy, the former Vice President,
Finance and Administration of the Company, received 20,000 Stock Purchase
Rights. None of Messrs. Randall, Lewis or Mulroy exercised any of the Stock
Purchase Rights they were granted prior to the stated expiration of such Stock
Purchase Rights in November 1998. However, prior to the stated expiration of
the Stock Purchase Rights in November 1998, five other employees did purchase
42,250 shares of Series B Common Stock at a price of $4.50 per share. No Stock
Purchase Rights have been granted under the Stock Purchase Plan since
September 1998.
Vote Required
The affirmative vote of stockholders holding a majority of the voting power
of the stock represented and entitled to vote, in person or by proxy, at the
Annual Meeting is required to approve the adoption of the Stock Purchase Plan.
The Company's Board of Directors Unanimously Recommends a Vote "FOR" the
Approval of the Adoption of the 1998 Stock Purchase Plan of FirstWorld
Communications, Inc. Proxies Solicited by the Board of Directors Will be so
Voted Unless Stockholders Specify Otherwise on the Accompanying Proxy.
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PROPOSAL 4
APPROVAL OF THE ADOPTION OFTHE FIRSTWORLD COMMUNICATIONS, INC. QUARTERLY BONUS
PROGRAM
At the Annual Meeting, the stockholders of the Company will be asked to
consider and vote upon a proposal to approve the adoption of FirstWorld
Communications, Inc. Quarterly Bonus Program (the "Bonus Program") described
herein. The Bonus Program was adopted by the Board of Directors as of May 3,
1999.
Although there is no specific requirement for the Company's stockholders to
approve the Bonus Program, the Board of Directors would like the Company's
stockholders to approve the Bonus Program. The Board of Directors believes
that the Bonus Program will provide an incentive for superior work and
motivate Plan Participants (as defined below) toward higher achievement and
business results. In addition, the Board of Directors also believes the Bonus
Program will further tie the Plan Participants' goals and interests to those
of the Company and its stockholders, and will help enable the Company to
attract and retain highly qualified employees. Should the Bonus Program not be
approved by the Company's stockholders, the Company intends to continue to
operate the Bonus Program and award bonuses to employees thereunder.
General Nature and Purposes of the Bonus Program
The Bonus Program is intended to incentivize both individual productivity
and employee retention. Bonuses (each, a "Bonus") paid out to eligible
participants in the Bonus Program are based in part on the productivity of a
participant's profit and loss center (each, a "Profit and Loss Center") and in
part on individual performance. In order to be eligible to receive a bonus a
participant's Profit and Loss Center and the individual participant must meet
certain minimum performance goals or standards. Failure of the Profit and Loss
Center or the individual participant to meet these minimum performance goals
or standards results in such individual participant being ineligible for any
Bonus for that period.
A brief description of the principal features of the Bonus Program follows,
but the description is qualified in its entirety by reference to the Bonus
Program itself, a copy of which is included as Exhibit C to this Proxy
Statement.
Administration of the Bonus Program
The Bonus Program will be administered by the Compensation Committee (the
"Committee") of the Company. Subject to the provisions of the Bonus Program,
the Committee shall have the plenary authority to (i) interpret the Bonus
Program, (ii) make such rules as it deems necessary for the proper
administration of the Bonus Program, (iii) make all other determinations
necessary or advisable for the administration of the Bonus Program and (iv)
correct any defect or supply any omission or reconcile any inconsistency in
the Bonus Program in the manner and to the extent that the Committee deems
advisable. All determinations and decisions made by the Committee shall be
made in its discretion pursuant to the provisions of the Bonus Program, and
shall be final, conclusive and binding on all persons including the Company
and Plan Participants (as defined below).
Eligibility for Participation in the Bonus Program
The Bonus Program applies to non-commissioned employees of the Company who
are scheduled to work 40 hours or more per week ("Plan Participants").
Temporary contract employees are not eligible to participate in the Bonus
Program. The Bonus Program also provides that Plan Participants must be
employed on the date a bonus check is issued in order to receive a Bonus.
Term of the Bonus Program
The Bonus Program became effective on May 3, 1999, the date on which the
Bonus Program was approved by the Board of Directors. The Bonus Program covers
the period of January 1, 1999 through December 31, 1999
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and each year thereafter so long as the Bonus Program remains in effect (each,
a "Plan Year"). The Committee reserves the right to cancel, modify or alter
the Bonus Program, in whole or in part, at any time, for any reason, with or
without prior notice.
Bonuses; Criteria
The maximum Bonus that particular Plan Participants are eligible to receive
depends on their position with the Company; however, Plan Participants
generally can receive between 10% and 20% of their "total compensation" (as
defined in the Bonus Program) as a Bonus. Bonuses will be paid out to Plan
Participants who qualify for such Bonuses four times during a Plan Year. The
Plan Participant must be employed at the time the quarterly bonus is paid in
order to earn and receive the bonus payment. The Bonus Program is structured
so that an amount equal to 50% of the bonus calculated for each quarter will
be earned and paid at the time the fourth quarter bonus payment is made. The
Plan Participant must be employed at the time of the fourth quarter payment in
order to earn and receive said amount. Bonuses will be calculated based upon
the following weighted criteria: (i) 75% based on quarterly revenue goals of
the Profit and Loss Center in which a Plan Participant works and (ii) 25%
based on the individual Plan Participant's performance on a numerical scale as
evaluated by such Plan Participant's direct supervisor. If a Profit and Loss
Center fails to achieve 75% of its revenue goal for a particular quarter, then
all Plan Participants in such Profit and Loss Center will not be eligible to
receive a Bonus for such quarter, regardless of their individual performance.
Similarly, Plan Participants scoring below an overall score of 3.0 (a score of
below 3.0 corresponds to a "less than competent" review) will not qualify for
a Bonus for such quarter, regardless of whether their Profit and Loss Center
achieves its quarterly revenue goals.
Form of Payment; Option to Receive Bonus in Stock
Plan Participants who qualify for a Bonus will generally be paid by the
Company in cash. However, certain Plan Participants may elect to receive the
Bonus they earned during a particular period in shares of Series B Common
Stock ("Shares") in lieu of a cash payment. Subject in all cases to compliance
with applicable state and federal securities laws, Plan Participants who
report directly to the President and Chief Executive Officer of the Company
("Eligible Plan Participants") are eligible to make an election to receive
their bonus in Shares.
Shares Subject to the Program. An aggregate of Two Hundred Thousand Shares
(200,000) shall be authorized for issuance under the Bonus Program. Such
Shares may be previously authorized but unissued Shares or, if the
Compensation Committee so decides in its sole discretion, previously issued
Shares acquired by the Company and held in its treasury. In the event of a
stock dividend, stock split or combination of shares, recapitalization or
other change in the Company's capital stock, the maximum number of shares or
securities that may be delivered under the Bonus Program and other relevant
provisions shall be appropriately adjusted by the Committee.
Issuance of Shares. An Eligible Plan Participant must notify the Company of
his/her election to receive his/her bonus in Shares before the date bonuses
would be paid out. An Eligible Plan Participant may elect to receive all or a
certain portion of his/her bonus in Shares; provided, however, that an
election to receive Shares must be for a minimum of 50% of such Eligible Plan
Participant's bonus. The number of Shares to which the Eligible Plan
Participant would be entitled will equal the cash bonus that the Eligible Plan
Participant would have received but for his/her election to receive Shares,
divided by the Fair Market Value of a Share (as defined in the Bonus Program)
on the date the bonus payment is made. The Eligible Plan Participant would be
required to pay taxes and other applicable withholdings on the dollar value of
the quarterly bonus received before the Company is required to issue the
Shares. The number of Shares to be issued will be rounded down to the next
full Share.Legal and Regulatory Matters. The delivery of Shares pursuant to
the Bonus Program shall be subject to compliance with (i) any actions required
by governmental authorities in connection with the authorization, issuance,
sale or delivery of such Shares, as well as applicable federal, state and
foreign securities laws, (ii) if the outstanding Shares are listed at the time
on any securities exchange or automated quotation system, the listing
requirements of such exchange or system and (iii) the approval of counsel to
the Company of all other legal matters in connection with the issuance and
delivery of the Shares.
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No Rights as a Stockholder Until Certificate Issued. An Eligible Plan
Participant shall not be deemed to be a stockholder and shall not have any of
the rights or privileges of a stockholder until a stock certificate has been
issued in the name of such Eligible Plan Participant in accordance with the
terms and conditions of the Bonus Program.
Transfer to a Position Not Covered by the Bonus Program
The Company may, in its sole discretion, transfer a Plan Participant to a
new or different job position at any time. If a Plan Participant is
transferred to a position not covered by the Bonus Program, the Plan
Participant will cease participation under the Bonus Program as of the
effective date of the transfer. However, for the quarter when the transfer
occurs, the Plan Participant will receive a pro rata share of any bonus for
which he or she would otherwise qualify under the Bonus Program.
Hire or Transfer to a Position Covered by the Bonus Program
If a non-Plan Participant is hired or transferred to a position covered by
the Bonus Program, he or she will become a Plan Participant effective the
first day of the quarter beginning after the effective date of the hire or
transfer.
Transfer from One Profit and Loss Center to Another Profit and Loss Center
If a Plan Participant is transferred from one Profit and Loss Center to
another, the Plan Participant's eligibility for a bonus in the quarter in
which the transfer occurred will be based on the revenues of the Profit and
Loss Center in which such Plan Participant is located at the end of the
applicable quarter.
Termination of Employment
All employees of the Company are employed on an "at will" basis. The
employment relationship may be terminated by the Company or the employee at
any time, for any reason, with or without cause or notice. The Bonus Program
also provides that Plan Participants must be employed on the date a bonus
check is issued in order to receive a bonus. However, if a Plan Participant's
employment is terminated due to a "reduction in force" (as defined in the
Bonus Program), the Plan Participant will receive a pro rata share of any
bonus for which he or she would otherwise qualify under the Bonus Program for
the quarter when such termination occurs, exclusive of the 50% payable at the
end of the year.
Withholding Requirements and Arrangements
Each recipient of a Bonus under the Bonus Program shall pay to the Company
or make provision satisfactory to the Committee for payment of any taxes
required by law to be withheld in respect of Bonuses under the Bonus Program
no later than the date of the event creating the tax liability. In the
Committee's discretion, such tax obligations may be paid in whole or in part
in Shares, including Shares obtained in connection with the Bonus, valued at
their Fair Market Value on the date of delivery. The Company may, to the
extent permitted by law, deduct any such tax obligations from any payment of
any kind otherwise due to the recipient.
Amendments or Modifications
The Committee may at any time discontinue granting Bonuses under the Bonus
Program. The Committee also may modify, amend, suspend or terminate the Bonus
Program in whole or in part at any time; provided, however, that no
modification, amendment, suspension or termination of the Bonus Program shall
be made without stockholder approval if such approval is necessary to comply
with any applicable tax, regulatory or securities requirements or the
requirements of any exchange or automated quotation system upon which Shares
are then trading; and provided, further, that such modification, amendment,
suspension or termination shall not
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affect adversely the rights of any previous recipient of a Bonus under the
Bonus Program regardless of whether such Bonus was paid in cash or Shares.
Bonuses Granted Under the Bonus Program
The actual amount of future bonus payments under the Bonus Program is not
presently determinable. However, the Company expects to pay Plan Participants
approximately $600,000 worth of bonuses for the quarter ended March 31, 1999.
Of this eight, Eligible Plan Participants have the option to receive up to
approximately 6,500 shares of Series B Common Stock in lieu of cash payments
of approximately $39,000. The Company has no present knowledge of whether any
Eligible Plan Participant will elect to receive all or a portion of such
participant's bonus in stock.
Vote Required
The affirmative vote of stockholders holding a majority of the voting power
of the stock represented and entitled to vote, in person or by proxy, at the
Annual Meeting is required to approve the adoption of the Bonus Program.
The Company's Board of Directors Unanimously Recommends a Vote "FOR" the
Approval of the Adoption of the FirstWorld Communications, Inc. Quarterly
Bonus Program. Proxies Solicited by the Board of Directors Will be so Voted
Unless Stockholders Specify Otherwise on the Accompanying Proxy.
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PERFORMANCE GRAPH
The following graph presents a comparison of the cumulative stockholder
return on the Company's Series B Common Stock commencing on October 8, 1998,
the date on which the Company's Series B Common Stock was registered with the
Securities and Exchange Commission, and ending December 31, 1998, with the
cumulative total return of the Nasdaq Stock Market (U.S.) Index and a peer
group comprised of certain Internet service providers, telecommunications and
web integration companies over the same period. The returns shown assume that
$100 was invested in the Company's Series B Common Stock, stocks comprising
the Nasdaq Stock Market (U.S.) Index and stocks comprising the peer group on
October 8, 1998. The returns shown also assume that all dividends paid, if
any, during the period were reinvested. Stockholders are cautioned against
drawing any conclusions from the data contained therein, as past performance
is no guarantee of future results. In addition, there is no public market for
the Company's Series B Common Stock. Because there is no public market for the
Company's Series B Common Stock, the cumulative stockholder return of the
Company's Series B Common Stock is based on the Board of Directors'
determination of the fair market value of a share of Series B Common Stock.
The Board of Directors did not change its determination of the fair market
value of a share of Series B Common Stock during the relevant period. There
can be no assurance that shares of Series B Common Stock would trade at the
fair market value determined by the Company's Board of Directors if a public
market existed for the Series B Common Stock.
[PERFORMANCE GRAPH APPEARS HERE]
Cumulative Total Return
-----------------------
10/8/98 12/31/98
FIRSTWORLD COMMUNICATIONS, INC. 100 100
PEER GROUP 100 211
NASDAQ STOCK MARKET (U.S.) 100 140
* The peer group selected by the Company consists of the following eight
companies: Exodus Communications, Inc., @Home Corp., Concentric Network Corp.,
Globix Corp., International Network Services, Inc., PSI Net, Inc., Sapient
Corp. and Verio, Inc. The total return for each company in the peer group has
been weighted for stock market capitalization. These companies are Internet
service providers, telecommunications and web integration companies.
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GENERAL
Independent Accountants
The Board of Directors has selected PricewaterhouseCoopers LLP to serve as
the Company's independent accountants for the 1999 fiscal year.
Representatives of PricewaterhouseCoopers LLP are expected to be present at
the Annual Meeting, will have the opportunity to make a statement if they
desire to do so and are expected to be available to respond to appropriate
questions.
Effective November 1996, the Company engaged Price Waterhouse LLP (which
subsequently merged with Coopers & Lybrand L.L.P. and is now known as
PricewaterhouseCoopers 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.
Compliance with Section 16(a) of the Exchange Act
Under Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act"), as amended, directors, officers and beneficial owners of 10 percent or
more of the Company's Series B Common Stock ("Reporting Persons") are required
to report to the Securities and Exchange Commission (the "Commission") on a
timely basis the initiation of their status as a Reporting Person and any
changes with respect to their beneficial ownership of the Company's Series B
Common Stock. Based solely on its review of such forms received by it, the
Company believes that all of the Section 16(a) filings required to be made by
Reporting Persons with respect to the 12 months ended December 31, 1998 were
made on a timely basis except that one report of initial statement of
beneficial ownership of securities on Form 3 with respect to one transaction
was filed late by each of (i) David Gandini, the Executive Vice President of
the Company, (ii) Marion K. Jenkins, the Senior Vice President, Information
Technology and Chief Information Officer of the Company, and (iii) Douglas L.
Kramer, the Senior Vice President and Chief Technical Officer of the Company.
Stockholder Proposals
A proposal to be considered for inclusion in the Company's proxy statement
for the next annual meeting must be received by the Secretary of the Company
not later than January 18, 2000 to be considered for inclusion in the
Company's proxy statement and form of proxy relating to that meeting. A
stockholder proposal submitted after January 20, 2000 will not be considered
timely. Holders of proxies which expressly confer discretionary authority may
vote for or against an untimely proposal.
Annual Report
The Annual Report of the Company for the fiscal year ended September 30,
1998 will be mailed to stockholders of record on or about May 19, 1999. The
Annual Report does not constitute, and should not be considered, a part of
this Proxy solicitation material.
If any person who was a beneficial owner of Series A Common Stock or Series
B Common Stock of the Company on the record date for the Annual Meeting of
Stockholders desires additional information, a copy of
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the Company's Annual Report on Form 10-K and its amended Annual Report on Form
10-K/A will be furnished without charge upon receipt of a written request
identifying the person so requesting a report as a stockholder of the Company
at such date. Requests should be directed to FirstWorld Communications, Inc.,
7100 E. Belleview Avenue, Suite 210, Greenwood Village, Colorado 80111,
Attention: Secretary.
Other Matters
The Board of Directors does not know of any matter to be presented at the
Annual Meeting which is not listed on the Notice of Annual Meeting and
discussed above. If other matters should properly come before the meeting,
however, the persons named in the accompanying Proxy will vote all Proxies in
accordance with their best judgment.
ALL STOCKHOLDERS ARE URGED TO COMPLETE, SIGN AND RETURN THE ACCOMPANYING PROXY
CARD IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors
Jeffrey L. Dykes
Senior Vice President, General Counsel
and Secretary
Dated: May 19, 1999
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EXHIBIT A
THE 1999 EQUITY INCENTIVE PLAN
OF
FIRSTWORLD COMMUNICATIONS, INC.
FirstWorld Communications, Inc., a Delaware corporation (the "Company"), has
adopted The 1999 Equity Incentive Plan of FirstWorld Communications, Inc. (the
"Plan"), effective March 8, 1999, for the benefit of its eligible employees
and consultants.
The purposes of this Plan are as follows:
(1) To provide an additional incentive for key Employees and consultants
to further the growth, development and financial success of the Company by
personally benefiting through the ownership of Company stock which
recognizes such growth, development and financial success.
(2) To enable the Company to obtain and retain the services of key
Employees and consultants considered essential to the long range success of
the Company by offering them an opportunity to own stock in the Company
which will reflect the growth, development and financial success of the
Company.
ARTICLE I.
Definitions
1.1. General. Wherever the following terms are used in this Plan they shall
have the meanings specified below, unless the context clearly indicates
otherwise.
1.2. Affiliate. "Affiliate" shall mean, with respect to any Person, any
Person that, directly or indirectly, controls, or is controlled by or is under
common control with such Person. For the purpose of this definition, "control"
(including the terms "controlling," "controlled by" and "under common control
with"), 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
by contract or agency or otherwise.
1.3. Award. "Award" shall mean an Option or a Stock Appreciation Right which
may be awarded or granted under the Plan (collectively, "Awards").
1.4. Award Limit. "Award Limit" shall mean 500,000 shares of Common Stock,
as adjusted pursuant to Section 9.3.
1.5. Board. "Board" shall mean the Board of Directors of the Company.
1.6. Change of Control. "Change of Control" shall mean (i) the sale,
transfer, exchange or other disposition of all or substantially all of the
assets of the Company except for a transaction the principal purpose of which
is to change the state in which the Company is incorporated, to form a holding
company or to effect a similar reorganization as to form whereupon this Plan
and all Options are assumed by the successor entity or (ii) the transfer, or
related transfers, of fifty-one percent (51%) or more of the total combined
voting power of the Company's outstanding securities to a person or persons
different from those who held such securities immediately prior to such
transfer or related transfers, provided that transfers of voting securities
between or among Enron Capital & Trade Resources Corp., a Delaware
corporation, Donald L. Sturm or their respective Affiliates shall not be
considered transfers that are subject to this clause (ii) and provided
further, that acquisitions of voting securities by Enron Capital & Trade
Resources Corp., a Delaware corporation, Donald L. Sturm or their respective
Affiliates shall not be considered transfers that are subject to this clause
(ii).
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1.7. Code. "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.8. Committee. "Committee" shall mean the Compensation Committee of the
Board, or another committee of the Board, appointed as provided in Section
8.1.
1.9. Common Stock. "Common Stock" shall mean the Series B Common Stock,
$0.0001 par value per share, of the Company, and any equity security of the
Company issued or authorized to be issued in the future, but excluding any
preferred stock and any warrants, options or other rights to purchase Common
Stock.
1.10. Company. "Company" shall mean FirstWorld Communications, Inc., a
Delaware corporation.
1.11. Director. "Director" shall mean a member of the Board.
1.12. Disability. "Disability" shall mean, with respect to any Optionee, (i)
the suffering of any mental or physical illness, disability or incapacity that
shall in all material aspects preclude such Optionee from performing his or
her employment or consultant duties or (ii) the absence of such Optionee from
his or her employment or consultant duties by reason of any mental or physical
illness, disability or incapacity for a period of six (6) months during any
twelve (12) month period; provided, however, in either case, that such
illness, disability or incapacity shall be reasonably determined to be of a
permanent nature by the Committee.
1.13. Employee. "Employee" shall mean any officer or other employee (as
defined in accordance with Section 3401(c) of the Code) of the Company, or of
any corporation which is a Subsidiary.
1.14. Exchange Act. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
1.15. Fair Market Value. "Fair Market Value" of a share of Common Stock as
of a given date shall be: (i) the closing price of a share of Common Stock on
the principal exchange on which shares of Common Stock are then trading, if
any (or as reported on any composite index which includes such principal
exchange), on the trading day previous to such date, or if shares were not
traded on the trading day previous to such date, then on the next preceding
date on which a trade occurred; or (ii) if Common Stock is not traded on an
exchange but is quoted on NASDAQ or a successor quotation system, the mean
between the closing representative bid and asked prices for the Common Stock
on the trading day previous to such date as reported by NASDAQ or such
successor quotation system; or (iii) if Common Stock is not publicly traded on
an exchange and not quoted on NASDAQ or a successor quotation system, the Fair
Market Value of a share of Common Stock shall be established by the Board
acting in good faith, giving predominate weight to the earnings history, book
value and prospects of the Company in light of market and industry conditions
generally.
1.16. Holder. "Holder" shall mean a person who has been granted or awarded
an Award
1.17. Incentive Stock Option. "Incentive Stock Option" shall mean an option
which conforms to the applicable provisions of Section 422 of the Code and
which is designated as an Incentive Stock Option by the Committee.
1.18. Independent Director. "Independent Director" shall mean a member of
the Board who is not an Employee of the Company.
1.19. Non-Qualified Stock Option. "Non-Qualified Stock Option" shall mean an
Option which is not designated as an Incentive Stock Option by the Committee.
1.20. Option. "Option" shall mean a stock option granted under Article III
of this Plan. An Option granted under this Plan shall, as determined by the
Committee, be either a Non-Qualified Stock Option or an Incentive Stock
Option; provided, however, that Options granted to consultants shall be Non-
Qualified Stock Options.
1.21. Option Shares. "Option Shares" shall mean shares of Common Stock
acquired by Optionees through the exercise of Options under this Plan.
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1.22. Optionee. "Optionee" shall mean an Employee or consultant granted an
Option under this Plan.
1.23. Person. "Person" shall mean a corporation, an association, a
partnership, a trust, a limited liability company, an organization, a business
or an individual.
1.24. Plan. "Plan" shall mean The 1999 Equity Incentive Plan of FirstWorld
Communications, Inc.
1.25. Public Offering. "Public Offering" shall mean the Company's initial
offering of equity securities on Form S-1 (or a successor form).
1.26. Related Person. "Related Person" shall mean: (a) in the event of a
Person's death, such Person's executors, administrators, testamentary
trustees, legatees or beneficiaries or the executors, administrators,
testamentary trustees, legatees or beneficiaries of a Person who has become a
holder of Options or Option Shares in accordance with the terms of this Plan;
or (b) a revocable trust or custodianship the beneficiaries of which may
include only such Person, spouse or lineal descendants by blood or adoption.
1.27. Rule 16b-3. "Rule 16b-3" shall mean that certain Rule 16b-3 under the
Exchange Act, as such Rule may be amended from time to time.
1.28. Securities Act. "Securities Act" shall mean the Securities Act of
1933, as amended.
1.29. Stock Appreciation Right. "Stock Appreciation Right" shall mean a
stock appreciation right granted under Article VII of the Plan.
1.30. Stock Appreciation Right Award Agreement. "Stock Appreciation Right
Award Agreement" shall mean a written agreement executed by an authorized
officer of the Company and the Holder which shall contain such terms and
conditions with respect to an Award as the Committee shall determine,
consistent with the Plan.
1.31. Subsidiary. "Subsidiary" shall mean (a) any corporation in an unbroken
chain of corporations beginning with the Company if each of the corporations
other than the last corporation in the unbroken chain then owns stock
possessing fifty percent (50%) or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain, (b) any
partnership in which the Company is a general partner, (c) any limited
liability company in which the Company is a managing member or (d) any
partnership or limited liability company in which the Company possesses a
fifty percent (50%) or greater interest in the total capital or total income
of such partnership.
1.32. Termination of Consultancy. "Termination of Consultancy" shall mean
the time when the engagement of an Optionee as a consultant to the Company or
a Subsidiary is terminated for any reason, with or without cause, including,
but not by way of limitation, by resignation, discharge, death, Disability or
retirement; but excluding terminations where there is a simultaneous
commencement of employment with the Company or any Subsidiary. The Committee,
in its absolute discretion, shall determine the effect of all matters and
questions relating to Termination of Consultancy, including, but not by way of
limitation, the question of whether a Termination of Consultancy resulted from
a discharge for good cause, and all questions of whether particular leaves of
absence constitute Terminations of Consultancy. Notwithstanding any other
provision of this Plan, the Company or any Subsidiary has an absolute and
unrestricted right to terminate a consultant's service at any time for any
reason whatsoever, with or without cause, except to the extent expressly
provided otherwise in writing.
1.33. Termination of Employment. "Termination of Employment" shall mean the
time when the employee-employer relationship between an Optionee and the
Company or any Subsidiary is terminated for any reason, with or without cause,
including, but not by way of limitation, a termination by resignation,
discharge, death, Disability or retirement; but excluding (i) terminations
where there is a simultaneous reemployment or continuing employment of an
Optionee by the Company or any Subsidiary, (ii) at the discretion of the
Committee, terminations which result in a temporary severance of the employee-
employer relationship and (iii) at the discretion of the Committee,
terminations which are followed by the simultaneous establishment of a
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consulting relationship by the Company or a Subsidiary with the former
employee. The Committee, in its absolute discretion, shall determine the
effect of all matters and questions relating to Termination of Employment,
including, but not by way of limitation, the question of whether a Termination
of Employment resulted from a discharge for good cause, and all questions of
whether particular leaves of absence constitute Terminations of Employment;
provided, however, that, unless otherwise determined by the Committee in its
discretion, a leave of absence, change in status from an employee to an
independent contractor or other change in the employee-employer relationship
shall constitute a Termination of Employment if, and to the extent that, such
leave of absence, change in status or other change interrupts employment for
the purposes of Section 422(a)(2) of the Code and the then applicable
regulations and revenue rulings under said Section. Notwithstanding any other
provision of this Plan, the Company or any Subsidiary has an absolute and
unrestricted right to terminate an Employee's employment at any time for any
reason whatsoever, with or without cause, except to the extent expressly
provided otherwise in writing.
1.34. Termination for Cause. "Termination for Cause" shall mean the time
when the employee-employer or consultant-employer relationship between an
Optionee and the Company or any Subsidiary is terminated for cause, as
termination for cause is defined in the Optionee's employment or consultancy
agreement; provided, however, that if termination for cause is not therein
defined, it shall have such meaning, in conformance with applicable law, as
the Committee shall determine is appropriate.
ARTICLE II.
Shares Subject to Plan
2.1. Shares Subject to Plan.
(a) The shares of stock subject to Options shall be Common Stock. The
aggregate number of such shares which may be issued upon exercise of such
Options under the Plan shall be 5,000,000. The shares of Common Stock of the
Company issuable upon exercise of such Options may be either previously
authorized but unissued shares or treasury shares.
(b) The maximum number of shares which may be subject to Options granted
under the Plan to any individual in any fiscal year of the Company shall not
exceed the Award Limit.
2.2. Add-back of Options and Other Rights. If any Option to acquire shares
of Common Stock under the Plan expires or is canceled without having been
fully exercised, the number of shares subject to such Option but as to which
such Option was not exercised prior to its expiration, cancellation or
exercise may again be available for the granting of Options hereunder, subject
to the limitations of Section 2.1. Furthermore, any shares subject to Options
which are adjusted pursuant to Section 9.3 and become exercisable with respect
to shares of stock of another corporation shall be considered canceled and may
again be available for the granting of Options hereunder, subject to the
limitations of Section 2.1. Shares of Common Stock which are delivered by the
Optionee or withheld by the Company upon the exercise of any Option under this
Plan, in payment of the exercise price thereof, may again be available for the
granting of Options hereunder, subject to the limitations of Section 2.1.
Notwithstanding the provisions of this Section 2.2, no shares of Common Stock
may again be available for the granting of Options if such action would cause
an Incentive Stock Option to fail to qualify as an incentive stock option
under Section 422 of the Code.
ARTICLE III.
Granting of Options
3.1. Eligibility. Any Employee or consultant who is selected by the
Committee pursuant to Section 3.4(a)(i) and approved by the Board pursuant to
Section 3.4(b) shall be eligible to be granted an Option.
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3.2. Disqualification for Stock Ownership. No person may be granted an
Incentive Stock Option under this Plan if such person, at the time the
Incentive Stock Option is granted, owns stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the
Company or any then existing Subsidiary unless such Incentive Stock Option
conforms to the applicable provisions of Section 422 of the Code.
3.3. Qualification of Incentive Stock Options. No Incentive Stock Option
shall be granted to any person who is not an Employee.
3.4. Granting of Options.
(a) Subject to the approval of the Board and the applicable limitations of
this Plan, the Committee shall from time to time:
(i) Determine which Employees are key Employees and select from among the
key Employees and consultants (including Employees and consultants who have
previously received Options or other awards under this Plan) such of them
as in its opinion should be granted Options;
(ii) Subject to the Award Limit, determine the number of shares to be
subject to such Options granted to the selected key Employees and
consultants;
(iii) Subject to Section 3.2, determine whether such Options are to be
Incentive Stock Options or Non-Qualified Stock Options and whether such
Options are to qualify as performance- based compensation as described in
Section 162(m)(4)(C) of the Code; and
(iv) Determine the terms and conditions of such Options, consistent with
this Plan; provided, however, that the terms and conditions of Options
intended to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code shall include, but not be limited to, such
terms and conditions as may be necessary to meet the applicable provisions
of Section 162(m) of the Code.
(b) The Board shall, in its absolute discretion, approve, disapprove or
modify the Committee's selection under Section 3.4(a)(i)-(iv) of key Employees
and consultants to be granted Options and the terms and conditions of such
Options.
(c) Upon the selection of a key Employee or consultant to be granted an
Option and the approval of the Board, the Committee shall instruct the
Secretary of the Company to issue the Option and may impose such conditions on
the grant of the Option as it deems appropriate. Without limiting the
generality of the preceding sentence, the Committee may, in its discretion and
on such terms as it deems appropriate, require as a condition on the grant of
an Option to an Employee or consultant that such Employee or consultant
surrender for cancellation some or all of the unexercised Options or other
rights which have been previously granted to such Employee or consultant under
this Plan or otherwise. An Option, the grant of which is conditioned upon such
surrender, may have an option price lower (or higher) than the exercise price
of such surrendered Option or other award, may cover the same (or a lesser or
greater) number of shares as such surrendered Option or other award, may
contain such other terms as the Committee deems appropriate, and shall be
exercisable in accordance with its terms, without regard to the number of
shares, price, exercise period or any other term or condition of such
surrendered Option or other award.
(d) Any Incentive Stock Option granted under this Plan may be modified by
the Committee to disqualify such option from treatment as an "incentive stock
option" under Section 422 of the Code.
ARTICLE IV.
Terms of Options
4.1. Option Agreement. Each Option shall be evidenced by a written Stock
Option Agreement (a "Stock Option Agreement"), which shall be executed by the
Optionee and an authorized officer of the Company and
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which shall contain such terms and conditions as the Committee shall
determine, consistent with this Plan. Stock Option Agreements evidencing
Options intended to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code shall contain such terms and conditions as
may be necessary to meet the applicable provisions of Section 162(m) of the
Code. Stock Option Agreements evidencing Incentive Stock Options shall contain
such terms and conditions as may be necessary to meet the applicable
provisions of Section 422 of the Code.
4.2. Option Price. Subject to this Section 4.2, the Committee, in its
discretion, may allocate a different price to each installment of shares
subject to each Option. The price per share of the shares subject to each
Option shall be set by the Committee; provided, however, that:
(a) Unless otherwise permitted by applicable securities laws, such price
shall be not less than eighty-five percent (85%) of the Fair Market Value of
the stock at the time the option is granted, except that the price shall be
one hundred and ten percent (110%) of the Fair Market Value of the stock in
the case of any person possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or its
Subsidiary;
(b) In the case of Incentive Stock Options and Options intended to qualify
as performance-based compensation as described in Section 162(m)(4)(C) of the
Code, such price shall not be less than one hundred percent (100%) of the Fair
Market Value of a share of Common Stock on the date the Option is granted; and
(c) In the case of Incentive Stock Options granted to an individual then
owning (within the meaning of Section 424(d) of the Code) more than ten
percent (10%) of the total combined voting power of all classes of stock of
the Company or any Subsidiary such price shall not be less than one hundred
and ten percent (110%) of the Fair Market Value of a share of Common Stock on
the date the Option is granted.
4.3. Option Term. The term of an Option shall be set by the Committee in
its discretion; provided, however, that:
(a) No Option may have a term that extends beyond the expiration of seven
(7) years from the date the Option was granted;
(b) In the case of Incentive Stock Options, the term shall not be more than
seven (7) years from the date the Incentive Stock Option is granted, or five
(5) years from such date if the Incentive Stock Option is granted to an
individual then owning (within the meaning of Section 424(d) of the Code) more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or any Subsidiary;
(c) Except as limited by requirements of Section 422 of the Code and
regulations and rulings thereunder applicable to Incentive Stock Options, the
Committee may extend the term of any outstanding Option in connection with any
Termination of Employment or Termination of Consultancy of the Optionee, or
amend any other term or condition of such Option relating to such a
termination; and
(d) Unless otherwise permitted by applicable securities laws:
(i) In the event of an Optionee's Termination of Employment or
Termination of Consultancy prior to a Public Offering for any reason except
death, Disability or Termination for Cause, the Optionee shall have ninety
(90) days from the date of such Termination of Employment or Termination of
Consultancy to exercise the Option;
(ii) In the event of an Optionee's Termination of Employment or
Termination of Consultancy after a Public Offering for any reason except
death, Disability or Termination for Cause, the Optionee shall have thirty
(30) days from the date of such Termination of Employment or Termination of
Consultancy to exercise the Option;
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(iii) In the event of an Optionee's Termination of Employment or
Termination of Consultancy due to the Optionee's death or Disability, the
Optionee shall have twelve (12) months from the date of such Termination of
Employment or Termination of Consultancy to exercise the Option; and
(iv) Notwithstanding the forgoing, if an Optionee's Termination of
Employment or Termination of Consultancy also qualifies as a Termination
for Cause, the Committee, in its discretion, may terminate the Optionee's
right to exercise his or her Options on the date of such termination or
such other time as the Committee, in its discretion, shall deem
appropriate.
4.4. Option Vesting.
(a) The period during which the right to exercise an Option in whole or in
part vests in the Optionee shall be set by the Committee and the Committee may
determine that an Option may not be exercised in whole or in part for a
specified period after it is granted; provided, however, that, subject to
Section 4.4(b), (i) unless otherwise permitted by applicable securities laws,
each Option shall become exercisable no later than four (4) years after such
Option is granted and such Option shall become exercisable with respect to at
least twenty-five percent (25%) of the shares of Common Stock subject to such
Option, as determined by the Committee in its sole discretion, on each
anniversary of the date of the grant of such Option; and (ii) unless the
Committee otherwise provides in the terms of the Stock Option Agreement or
this Plan otherwise so dictates, no Option shall be exercisable by any
Optionee who is then subject to Section 16 of the Exchange Act within the
period ending six months and one day after the date the Option is granted;
provided, further, that Options may become fully exercisable, subject to
reasonable conditions such as continued employment or consultancy, at any time
or during any period established by the Committee.
(b) No portion of an Option which is unexercisable at Termination of
Employment or Termination of Consultancy shall thereafter become exercisable,
except as may be otherwise provided by the Committee either in the Stock
Option Agreement or by action of the Committee following the grant of the
Option.
(c) To the extent that the aggregate Fair Market Value of stock with respect
to which "incentive stock options" (within the meaning of Section 422 of the
Code, but without regard to Section 422(d) of the Code) are exercisable for
the first time by an Optionee during any calendar year (under the Plan and all
other incentive stock option plans of the Company and any Subsidiary) exceeds
$100,000, such Options shall be treated as Non-Qualified Stock Options to the
extent required by Section 422 of the Code. The rule set forth in the
preceding sentence shall be applied by taking Options into account in the
order in which they were granted. For purposes of this Section 4.4(c), the
Fair Market Value of stock shall be determined as of the time the Option with
respect to such stock is granted.
4.5. No Right to Employment. Nothing in this Plan or in any Stock Option
Agreement hereunder shall confer upon any Optionee any right to continue in
the employ of (or to consult for) the Company or any Subsidiary or shall
interfere with or restrict in any way the rights of the Company or any
Subsidiary, which are hereby expressly reserved, to discharge any Optionee at
any time for any reason whatsoever, with or without good cause.
4.6. Financial Statements. To the extent required by applicable securities
laws, each Optionee shall receive financial statements of the Company at least
annually.
ARTICLE V.
Exercise of Options
5.1. Partial Exercise. An exercisable Option may be exercised in whole or
in part. However, an Option shall not be exercisable with respect to
fractional shares and the Committee may require that, by the terms of the
Option, a partial exercise be with respect to a minimum number of shares.
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5.2. Manner of Exercise. All or a portion of an exercisable Option shall be
deemed exercised upon delivery of all of the following to the Secretary of the
Company or such Secretary's office:
(a) A written notice complying with the applicable rules established by the
Committee stating that the Option, or a portion thereof, is exercised. The
notice shall be signed by the Optionee or other person then entitled to
exercise the Option or such portion;
(b) Such representations and documents as the Committee, in its absolute
discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act and any other federal or state
securities laws or regulations. The Committee may, in its absolute discretion,
also take whatever additional actions it deems appropriate to effect such
compliance including, without limitation, placing legends on share
certificates and issuing stop-transfer notices to agents and registrars;
(c) In the event that the Option shall be exercised pursuant to Section 9.1
by any person or persons other than the Optionee, appropriate proof of the
right of such person or persons to exercise the Option; and
(d) Full cash payment to the Secretary of the Company for the shares and for
payment of any applicable withholding or other applicable employment taxes
with respect to which the Option, or portion thereof, is exercised. However,
the Committee, may in its discretion (i) allow payment, in whole or in part,
through the surrender of shares of Common Stock then issuable upon exercise of
the Option having a Fair Market Value on the date of Option exercise equal to
the aggregate exercise price of the Option or exercised portion thereof; (ii)
allow payment, in whole or in part, through the delivery of a notice that the
Optionee has placed a market sell order with a broker with respect to shares
of Common Stock then issuable upon exercise of the Option, and that the broker
has been directed to pay a sufficient portion of the net proceeds of the sale
to the Company in satisfaction of the Option exercise price and any applicable
withholding or other employment taxes; or (iii) allow payment through any
combination of the consideration provided in the foregoing subparagraphs (i)
and (ii).
5.3. Conditions to Issuance of Stock Certificates. The Company shall not be
required to issue or deliver any certificate or certificates for shares of
stock purchased upon the exercise of any Option or portion thereof prior to
fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges, if any,
on which such class of stock is then listed;
(b) The completion of any registration or other qualification of such shares
under any state or federal law, or under the rulings or regulations of the
Securities and Exchange Commission or any other governmental regulatory body
which the Committee or the Board shall, in its absolute discretion, deem
necessary or advisable;
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee or the Board shall, in its
absolute discretion, determine to be necessary or advisable;
(d) The lapse of such reasonable period of time following the exercise of
the Option as the Committee or the Board may establish from time to time for
reasons of administrative convenience; and
(e) The receipt by the Company of full payment for such shares, including
payment of any applicable withholding tax.
5.4. Rights as Stockholders. The holders of Options shall not be, nor have
any of the rights or privileges of, stockholders of the Company in respect of
any shares purchasable upon the exercise of any part of an Option unless and
until certificates representing such shares have been issued by the Company to
such holders.
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ARTICLE VI.
Rights and Restrictions With Respect to Option Shares
6.1. Transfer Restrictions. No Optionee may transfer, assign, pledge or
otherwise encumber any Option Shares except as expressly provided otherwise in
this Article VI; provided, however, that Option Shares may be transferred at
any time to a Related Person, provided that the Related Person agrees in
writing to be bound by the terms of this Plan.
6.2. Company's Right of First Refusal.
(a) An Optionee (a "Proposed Seller") shall be permitted to transfer,
assign, or sell any Option Shares in an arm's length transaction (a "Proposed
Transfer"); provided, however, such Optionee shall first offer to sell such
Option Shares to the Company under the procedure described in paragraphs (b)
and (c) of this Section 6.2.
(b) Prior to consummating any Proposed Transfer, the Proposed Seller shall
first notify the Company in writing that such Proposed Seller has received a
bona fide written offer to purchase Option Shares (a "Purchase Offer") and
shall offer to sell to the Company all Option Shares subject to the Purchase
Offer upon the terms and conditions (including credit terms, if any) set forth
in such Purchase Offer. Such notice (the "Offer Notice") shall set forth: (A)
the number of Option Shares proposed to be transferred, (B) the name and
address of the Proposed Seller and the proposed purchaser (the "Proposed
Purchaser") and (C) the proposed amount of consideration and all other
applicable terms and conditions as set forth in, and shall be accompanied by a
copy of, the Purchase Offer.
(c) (i) The Company shall have the option for a period of fifteen (15) days
following the Company's receipt of the Offer Notice to agree to purchase all
of the Option Shares subject to the Purchase Offer, upon the terms and
conditions specified therein.
(ii) In the event the Company agrees to purchase Option Shares pursuant
to and in accordance with this Section 6.2, such purchase shall occur at
the principal office of the Company ten (10) days following the expiration
of the fifteen (15) day period specified in subparagraph (i) of this
paragraph (c). In no event shall the Proposed Seller be required to
transfer any Option Shares to the Company pursuant to this Section 6.2
unless the Company purchases all of the Option Shares subject to the
Purchase Offer on the terms and at the price stated therein and within the
time periods specified herein.
(d) In the event the Company does not agree to purchase all of the Option
Shares offered to the Company by a Proposed Seller pursuant to this Section
6.2, then the Proposed Seller shall have the right for a period of thirty (30)
days after the termination of the Company's right to purchase such Option
Shares (or after waiver by the Company of its option to purchase such Option
Shares) to transfer to the Proposed Purchaser all, but not less than all, of
such Option Shares in the manner and on the terms and conditions specified in
the Purchase Offer; provided, however, the Proposed Purchaser shall agree in
writing to be bound by this Plan.
6.3. Lapse of Stock Restrictions and Rights. The provisions set forth in
Sections 6.1 and 6.2 shall terminate and cease to be of any further force or
effect upon the completion of a Public Offering, or a series of Public
Offerings, which result in public ownership of Common Stock of the Company
possessing at least twenty percent (20%) of the voting power of such Common
Stock.
6.4. Ownership and Transfer Restrictions. The Committee, in its absolute
discretion, may impose additional restrictions on the ownership and
transferability of the shares purchasable upon the exercise of an Option as it
deems appropriate. Any such restriction shall be set forth in the respective
Stock Option Agreement and may be referred to on the certificates evidencing
such shares.
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6.5. Legend. Each certificate representing Option Shares shall be endorsed
with the following legend, which legend shall be removed upon termination of
the stock restrictions set forth in this Article 6:
THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN
1999 EQUITY INCENTIVE PLAN OF FIRSTWORLD COMMUNICATIONS, INC.
COPIES OF SUCH 1999 EQUITY INCENTIVE PLAN MAY BE OBTAINED UPON
WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION.
6.6. Disposition of Shares. Notwithstanding and in addition to the
foregoing, each Optionee shall be required to give the Company prompt notice
of any disposition of shares of Common Stock acquired by exercise of an
Incentive Stock Option within (i) two (2) years from the date of granting such
Option to such Optionee or (ii) one (1) year after the transfer of such shares
to such Optionee. Certificates evidencing shares acquired by exercise of an
Incentive Stock Option shall refer to such requirement to give prompt notice
of disposition.
ARTICLE VII.
Stock Appreciation Rights
7.1. Grant of Stock Appreciation Rights. A Stock Appreciation Right may be
granted to any key Employee or consultant selected by the Committee. A Stock
Appreciation Right may be granted (a) in connection and simultaneously with
the grant of an Option, (b) with respect to a previously granted Option or (c)
independent of an Option. A Stock Appreciation Right shall be subject to such
terms and conditions not inconsistent with the Plan as the Committee shall
impose and shall be evidenced by a Stock Appreciation Right Award Agreement.
7.2. Coupled Stock Appreciation Rights.
(a) A Coupled Stock Appreciation Right ("CSAR") shall be related to a
particular Option and shall be exercisable only when and to the extent the
related Option is exercisable.
(b) A CSAR may be granted to the Holder for no more than the number of
shares subject to the simultaneously or previously granted Option to which it
is coupled.
(c) A CSAR shall entitle the Holder (or other person entitled to exercise
the Option pursuant to the Plan) to surrender to the Company unexercised a
portion of the Option to which the CSAR relates (to the extent then
exercisable pursuant to its terms) and to receive from the Company in exchange
therefor an amount determined by multiplying the difference obtained by
subtracting the Option exercise price from the Fair Market Value of a share of
Common Stock on the date of exercise of the CSAR by the number of shares of
Common Stock with respect to which the CSAR shall have been exercised, subject
to any limitations the Committee may impose.
7.3. Independent Stock Appreciation Rights.
(a) An Independent Stock Appreciation Right ("ISAR") shall be unrelated to
any Option and shall have a term set by the Committee. An ISAR shall be
exercisable in such installments as the Committee may determine. An ISAR shall
cover such number of shares of Common Stock as the Committee may determine;
provided, however, that unless the Committee otherwise provides in the terms
of the ISAR or otherwise, no ISAR granted to a person subject to Section 16 of
the Exchange Act shall be exercisable until at least six months have elapsed
from (but excluding) the date on which the ISAR was granted. The exercise
price per share of Common Stock subject to each ISAR shall be set by the
Committee. An ISAR is exercisable only while the Holder is an Employee or
consultant; provided that the Committee may determine that the ISAR may be
exercised subsequent to Termination of Employment or Termination of
Consultancy without cause, or following a Change in Control of the Company or
because of the Holder's retirement, death or disability, or otherwise.
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(b) An ISAR shall entitle the Holder (or other person entitled to exercise
the ISAR pursuant to the Plan) to exercise all or a specified portion of the
ISAR (to the extent then exercisable pursuant to its terms) and to receive
from the Company an amount determined by multiplying the difference obtained
by subtracting the initial price per share of the ISAR from the Fair Market
Value of a share of Common Stock on the date of exercise of the ISAR by the
number of shares of Common Stock with respect to which the ISAR shall have
been exercised, subject to any limitations the Committee may impose.
7.4. Right of the Board to Convert Stock Appreciation Rights to
Options. Notwithstanding the provisions of this Plan, the Board shall have the
right, but not the obligation, to convert the Stock Appreciation Rights
granted to any or all Holders pursuant to this Plan from Stock Appreciation
Rights to Options to purchase Common Stock of the Company. Any conversion
effected pursuant to this Section 7.4 shall adopt (i) an exercise price of the
Options equal to the initial price as stated in the Holder's Stock
Appreciation Right Award Agreement, (ii) an option period equal to the period
of exercisability as provided in the Holder's Stock Appreciation Right Award
Agreement and (iii) such other terms as determined by the Committee. Upon the
Board's determination to effect a conversion pursuant to this Section 7.4, the
Board shall provide prompt notice to the Holder of such determination (the
"Conversion Notice"). The Holder must surrender his Stock Appreciation Right
Award Agreement within fifteen (15) business days of the delivery of the
Conversion Notice. Within fifteen (15) business days of the receipt of the
Holder's Stock Appreciation Right Award Agreement, the Board shall issue an
Option Agreement to the Holder consistent with this Section 7.4 and such other
terms as determined by the Board.
7.5. Payment and Limitations on Exercise.
(a) Payment of the amounts determined under Section 7.2(c) and 7.3(b) above
shall be in cash.
(b) Holders of Stock Appreciation Rights may be required to comply with any
timing or other restrictions with respect to the settlement or exercise of a
Stock Appreciation Right, including a window-period limitation, as may be
imposed in the discretion of the Committee.
ARTICLE VIII.
Administration
8.1. Compensation Committee. The Compensation Committee (or another
committee of the Board assuming the functions of the Committee under this
Plan) shall consist solely of two or more Independent Directors appointed by
and holding office at the pleasure of the Board, each of whom is both a "non-
employee director" as defined by Rule 16(b)-3 and an "outside director" for
purposes of Section 162(m) of the Code. Appointment of Committee members shall
be effective upon acceptance of appointment. Committee members may resign at
any time by delivering written notice to the Board. Vacancies in the Committee
may be filled by the Board.
8.2. Duties and Powers of Committee. It shall be the duty of the Committee
to conduct the general administration of this Plan in accordance with its
provisions. The Committee shall have the power to interpret this Plan and the
agreements pursuant to which Options are granted or awarded, and to adopt such
rules for the administration, interpretation, and application of this Plan as
are consistent therewith and to interpret, amend or revoke any such rules. Any
such grant or award under this Plan need not be the same with respect to each
Optionee. Any such interpretations and rules with respect to Incentive Stock
Options shall be consistent with the provisions of Section 422 of the Code. In
its absolute discretion, the Board may at any time and from time to time
exercise any and all rights and duties of the Committee under this Plan except
with respect to matters which under Rule 16b-3 or Section 162(m) of the Code,
or any regulations or rules issued thereunder, are required to be determined
in the sole discretion of the Committee.
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8.3. Majority Rule; Unanimous Written Consent. The Committee shall act by a
majority of its members in attendance at a meeting at which a quorum is
present or by a memorandum or other written instrument signed by all members
of the Committee.
8.4. Compensation; Professional Assistance; Good Faith Actions. Members of
the Committee shall receive such compensation for their services as members as
may be determined by the Board. All expenses and liabilities which members of
the Committee incur in connection with the administration of this Plan shall
be borne by the Company. The Committee may, with the approval of the Board,
employ attorneys, consultants, accountants, appraisers, brokers, or other
persons. The Committee, the Company and the Company's officers and Directors
shall be entitled to rely upon the advice, opinions or valuations of any such
persons. All actions taken and all interpretations and determinations made by
the Committee or the Board in good faith shall be final and binding upon all
Optionees, the Company and all other interested persons. No members of the
Committee or Board shall be personally liable for any action, determination or
interpretation made in good faith with respect to this Plan or Options, and
all members of the Committee and the Board shall be fully protected by the
Company in respect of any such action, determination or interpretation.
ARTICLE IX.
Miscellaneous Provisions
9.1. Not Transferable. Options under this Plan may not be sold, pledged,
assigned or transferred in any manner other than by will or the laws of
descent and distribution, unless and until such options have been exercised,
or the shares underlying such Options have been issued, and all restrictions
applicable to such shares have lapsed. No Option or interest or right therein
shall be liable for the debts, contracts or engagements of the Optionee or the
Optionee's successors in interest or shall be subject to disposition by
transfer, alienation, anticipation, pledge, encumbrance, assignment or any
other means whether such disposition be voluntary or involuntary or by
operation of law by judgment, levy, attachment, garnishment or any other legal
or equitable proceedings (including bankruptcy), and any attempted disposition
thereof shall be null and void and of no effect, except to the extent that
such disposition is permitted by the preceding sentence.
During the lifetime of the Optionee, only such Optionee may exercise an
Option (or any portion thereof) granted to such Optionee under the Plan. After
the death of the Optionee, any exercisable portion of an Option may, prior to
the time when such portion becomes unexercisable under the Plan or the
applicable Stock Option Agreement or other agreement, be exercised by the
Optionee's personal representative or by any person empowered to do so under
the deceased Optionee's will or under the then applicable laws of descent and
distribution.
9.2. Amendment, Suspension or Termination of this Plan. Except as
otherwise provided in this Section 9.2, this Plan may be wholly or partially
amended or otherwise modified, suspended or terminated at any time or from
time to time by the Board or the Committee. However, without approval of the
Company's stockholders given within twelve months before or after the action
by the Board or the Committee, no action of the Board or the Committee may,
except as provided in Section 9.3, increase the limits imposed in Section 2.1
on the maximum number of shares which may be issued under this Plan or modify
the Award Limit, and no action of the Board or the Committee may be taken that
would otherwise require stockholder approval as a matter of applicable law,
regulation or rule. No amendment, suspension or termination of this Plan
shall, without the consent of the holder of Options, alter or impair any
rights or obligations under any Options theretofore granted or awarded, unless
the award itself otherwise expressly so provides. No Options may be granted or
awarded during any period of suspension or after termination of this Plan, and
in no event may any Incentive Stock Option be granted under this Plan after
the first to occur of the following events:
(a) The expiration of five (5) years from the date the Plan is adopted by
the Board; or
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(b) The expiration of five (5) years from the date the Plan is approved by
the Company's stockholders under Section 9.4.
9.3. Changes in Common Stock or Assets of the Company, Acquisition or
Liquidation of the Company and Other Corporate Events.
(a) Subject to Section 9.3(d), (A) in the event that the Committee
determines that any dividend or other distribution (whether in the form of
cash, Common Stock, other securities, or other property), recapitalization,
reclassification, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, liquidation, dissolution, or sale, transfer, exchange
or other disposition of all or substantially all of the assets of the Company
(including, but not limited to, a Change of Control), or exchange of Common
Stock or other securities of the Company, issuance of warrants or other rights
to purchase Common Stock or other securities of the Company, or other similar
corporate transaction or event, in the Committee's sole discretion, affects
the Common Stock such that an adjustment is determined by the Committee to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan or with
respect to an Option or (B) in the event of any stock split or reverse stock
split, then the Committee shall, in such manner as it may deem equitable,
adjust any or all of
(i) the number and kind of shares of Common Stock (or other securities or
property) with respect to which Awards may be granted under the Plan,
(including, but not limited to, adjustments of the limitations in Section
2.1 on the maximum number and kind of shares which may be issued and
adjustments of the Award Limit),
(ii) the number and kind of shares of Common Stock (or other securities
or property) subject to outstanding Awards, and
(iii) the grant or exercise price with respect to any Award.
(b) Subject to Section 9.3(d), in the event of a Change of Control, the
Board in its sole and absolute discretion shall provide either
(i) that all Awards granted hereunder shall become fully exercisable
notwithstanding anything to the contrary in Section 4.4 or the provisions
of the Awards, or
(ii) that the resulting or surviving corporation in any merger or
consolidation associated with such Change of Control will assume the Awards
granted hereunder or substitute for each Award granted hereunder an option
to purchase its shares on terms and conditions both as to the number and
kind of shares, prices and otherwise, which shall substantially preserve to
each Holder the rights and benefits of the applicable Award outstanding
hereunder granted by the Company.
(c) Subject to Section 9.3(d) and 9.7, the Committee may, in its discretion,
include such further provisions and limitations in any Award as it may deem
equitable and in the best interests of the Company.
(d) With respect to Awards intended to qualify as performance-based
compensation under Section 162(m), no adjustment or action described in this
Section 9.3 or in any other provision of the Plan shall be authorized to the
extent that such adjustment or action would cause the Plan to violate Section
422(b)(1) of the Code or would cause such Award to fail to so qualify under
Section 162(m), as the case may be, or any successor provisions thereto.
Furthermore, no such adjustment or action shall be authorized to the extent
such adjustment or action would result in short-swing profits liability under
Section 16 or violate the exemptive conditions of Rule 16b-3 unless the
Committee determines that the Award is not to comply with such exemptive
conditions. The number of shares of Common Stock subject to any Award shall
always be rounded to the next whole number.
9.4. Approval of Plan by Stockholders. This Plan will be submitted for the
approval of the Company's stockholders within twelve months after the date of
the Board's initial adoption of this Plan. Options may be granted prior to
such stockholder approval, provided that such Options shall not be exercisable
prior to the time when this Plan is approved by the stockholders, and provided
further that if such approval has not been obtained
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at the end of said twelve-month period, all Options previously granted under
this Plan shall thereupon be canceled and become null and void.
9.5. Tax Withholding. The Company shall be entitled to require payment in
cash or deduction from other compensation payable to each Optionee of any sums
required by federal, state or local tax law to be withheld with respect to the
issuance, vesting or exercise of any Option. The Committee may in its
discretion and in satisfaction of the foregoing requirement allow such
Optionee to elect to have the Company withhold shares of Common Stock
otherwise issuable under such Option (or allow the return of shares of Common
Stock) having a Fair Market Value equal to the sums required to be withheld.
9.6. Forfeiture Provisions. Pursuant to its general authority to determine
the terms and conditions applicable to awards under the Plan, the Committee
shall have the right (to the extent consistent with the applicable exemptive
conditions of Rule 16b-3 and to the extent permitted under applicable state
law) to provide, in the terms of Options made under the Plan, or to require
the recipient to agree by separate written instrument, that (i) any proceeds,
gains or other economic benefit actually or constructively received by the
recipient upon any receipt or exercise of an Option, or upon the receipt or
resale of any Common Stock underlying such Option, must be paid to the
Company, and (ii) the Option shall terminate and any unexercised portion of
such Option (whether or not vested) shall be forfeited, if (a) a Termination
of Employment or Termination of Consultancy occurs prior to a specified date,
or within a specified time period following receipt or exercise of the Option,
or (b) the recipient at any time, or during a specified time period, engages
in any activity in competition with the Company, or which is inimical,
contrary or harmful to the interests of the Company, as further defined by the
Committee (or the Board, as applicable).
9.7. Limitations Applicable to Section 16 Persons and Performance-Based
Compensation. Notwithstanding any other provision of this Plan and any Option
granted to any individual who is then subject to Section 16 of the Exchange
Act, shall be subject to any additional limitations set forth in any
applicable exemptive rule under Section 16 of the Exchange Act (including any
amendment to Rule 16b-3 of the Exchange Act) that are requirements for the
application of such exemptive rule. To the extent permitted by applicable law,
the Plan and Options granted or awarded hereunder shall be deemed amended to
the extent necessary to conform to such applicable exemptive rule.
Furthermore, notwithstanding any other provision of this Plan, any Option
intended to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code shall be subject to any additional limitations set
forth in Section 162(m) of the Code (including any amendment to Section 162(m)
of the Code) or any regulations or rulings issued thereunder that are
requirements for qualification as performance- based compensation as described
in Section 162(m)(4)(C) of the Code, and this Plan shall be deemed amended to
the extent necessary to conform to such requirements.
9.8. Effect of Plan Upon Options and Compensation Plans. The adoption of
this Plan shall not affect any other compensation or incentive plans in effect
for the Company or any Subsidiary. Nothing in this Plan shall be construed to
limit the right of the Company (i) to establish any other forms of incentives
or compensation for Employees or consultants of the Company or any Subsidiary
or (ii) to grant or assume options or other rights otherwise than under this
Plan in connection with any proper corporate purpose including, but not by way
of limitation, the grant or assumption of options in connection with the
acquisition by purchase, lease, merger, consolidation or otherwise, of the
business, stock or assets of any corporation, partnership, limited liability
company, firm or association.
9.9. Compliance with Laws. This Plan, the granting and vesting of Options
under this Plan and the issuance and delivery of shares of Common Stock and
the payment of money under this Plan or under Options granted hereunder are
subject to compliance with all applicable federal and state laws, rules and
regulations (including but not limited to state and federal securities law and
federal margin requirements) and to such approvals by any listing, regulatory
or governmental authority as may, in the opinion of counsel for the Company,
be necessary or advisable in connection therewith. Any securities delivered
under this Plan shall be subject to such restrictions, and the person
acquiring such securities shall, if requested by the Company, provide such
assurances and representations to the Company as the Company may deem
necessary or desirable to assure
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<PAGE>
compliance with all applicable legal requirements. To the extent permitted by
applicable law, the Plan and Options granted or awarded hereunder shall be
deemed amended to the extent necessary to conform to such laws, rules and
regulations.
9.10. Titles. Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of this Plan.
9.11. Governing Law. This Plan and any agreements hereunder shall be
administered, interpreted and enforced under the internal laws of the State of
Delaware without regard to conflicts of laws thereof.
I hereby certify that the foregoing Plan was duly adopted by the Board of
Directors of FirstWorld Communications, Inc. on March 8, 1999.
Executed on this 8th day of March, 1999.
/s/ Jeffrey L Dykes
Secretary
A-15
<PAGE>
EXHIBIT B
1998 STOCK PURCHASE PLAN
OF
FIRSTWORLD COMMUNICATIONS, INC.
I. Purposes of the Plan. The purposes of the 1998 Stock Purchase Plan of
FirstWorld Communications, Inc. are to attract and retain the best available
personnel for positions of substantial responsibility, to provide additional
incentive to employees and to promote the success of the Company's business.
II. Definitions.
(a) "Applicable Laws" means the requirements relating to the administration
of the Plan under U.S. state corporate laws, U.S. federal and state securities
laws, the Code, any stock exchange or quotation system on which the Common
Stock is listed or quoted and the applicable laws of any other country or
jurisdiction where Stock Purchase Rights may also be granted under the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the Compensation Committee or any other committee
appointed by the Board to administer the Plan as described in Section IV
below.
(e) "Common Stock" means the Series B Common Stock, $.0001 par value per
share, of the Company.
(f) "Company" means FirstWorld Communications, Inc., a Delaware corporation.
(g) "Director" means a member of the Board of Directors of the Company.
(h) "Employee" means any person (including individuals who also serve as
Officers or Directors) employed by the Company or any Subsidiary of the
Company. A Service Provider shall not cease to be an employee in the case of
(i) any leave of absence approved by the Company or (ii) transfers between
locations of the Company or between the Company and any Subsidiary or any
successor corporation.
(i) "Offeree" means a person who is awarded a Stock Purchase Right under the
Plan.
(j) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
(k) "Plan" means this 1998 Stock Purchase Plan of FirstWorld Communications,
Inc.
(l) "Service Provider" means an Employee or Director.
(m) "Share" means a share of Common Stock.
(n) "Stock Purchase Agreement" means an agreement between the Company and an
Offeree authorizing the grant of a Stock Purchase Right to such Offeree and
setting forth the terms and conditions of such Stock Purchase Right.
(o) "Stock Purchase Right" means a right to purchase Common Stock pursuant
to Section VII below.
(p) "Subject Stock" means shares of Common Stock acquired pursuant to a
grant of a Stock Purchase Right under Section VII below.
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(q) "Subsidiary" means a "subsidiary corporation" whether now or hereafter
existing, as defined in Section 424(f) of the Code.
III. Stock Subject to the Plan.
The maximum aggregate number of Shares which may be subject to Stock
Purchase Rights is 500,000 shares of Common Stock, subject to proportionate
adjustment for any increase or decrease in the number of issued shares of
Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company. The Shares may be authorized
but unissued or reacquired Common Stock.
If a Stock Purchase Right expires or becomes unexercisable without having
been exercised in full, the unpurchased Shares which were subject thereto
shall become available for future grant or sale under the Plan (unless the
Plan has terminated). However, Shares that have actually been issued under the
Plan, upon exercise of a Stock Purchase Right, shall not be returned to the
Plan and shall not become available for future distribution under the Plan.
IV. Administration of the Plan.
(a) Administrator. The Plan shall be administered by the Compensation
Committee or by another committee appointed by the Board, which Committee
shall be constituted to comply with Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the Plan and
the approval of any relevant authorities, the Committee shall have the
authority in its discretion:
(i) to select the Offerees to whom Stock Purchase Rights may from time to
time be granted hereunder;
(ii) to determine the number of Shares to be covered by each such award
granted hereunder;
(iii) to approve the form of agreement for use under the Plan;
(iv) to determine the terms and conditions of any Stock Purchase Right
granted hereunder. Such terms and conditions shall include, but are not
limited to, (A) the purchase price, which in any event must be no less than
the par value of the Common Stock to be purchased unless otherwise
permitted by Applicable Laws, (B) the form of payment for Stock Purchase
Rights, which may be in the form of cash, check, promissory note (for up to
50% of the aggregate purchase price) or any combination of the foregoing,
(C) the time or times when Stock Purchase Rights may be exercised (which
may be based on performance criteria), (D) any vesting, acceleration,
waiver or forfeiture restrictions and (E) any restriction or limitation
regarding any Stock Purchase Right or the Common Stock relating thereto,
based in each case on such factors as the Committee, in its sole
discretion, shall determine;
(v) to prescribe, amend and rescind rules and regulations relating to the
Plan; and
(vi) to construe and interpret the terms of the Plan and awards granted
pursuant to the Plan.
(c) Effect of Administrator's Decision. All decisions, determinations and
interpretations of the Committee shall be final and binding on all Offerees.
V. Eligibility.
(a) Eligible Offerees. Stock Purchase Rights may be granted to Service
Providers.
(b) No Continued Employment Right. Neither the Plan nor any Stock Purchase
Right shall confer upon any Offeree any right with respect to continuing the
Offeree's relationship as a Service Provider with the Company, nor shall it
interfere in any way with his or her right or the Company's right to terminate
such relationship at any time, with or without cause.
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<PAGE>
VI. Term of Plan. The Plan shall become effective upon its adoption by the
Board. It shall continue in effect for a term of ten (10) years unless sooner
terminated under Section IX below.
VII. Stock Purchase Rights.
(a) Rights to Purchase. After the Committee determines that it will offer
Stock Purchase Rights under the Plan, it shall advise the Offeree in writing
or electronically of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid and the period during which such offer must be
accepted. The offer shall be accepted by execution of a Stock Purchase
Agreement in the form attached hereto or as otherwise determined by the
Committee.
(b) Partial Payment by Promissory Note. Up to fifty percent (50%) of the
purchase price for the Shares subject to the Stock Purchase Right may be paid
in the form of a promissory note (the form of which is attached to the Stock
Purchase Agreement as Exhibit A). If the Offeree elects to pay a portion of
the purchase price with a promissory note, such Offeree shall also execute and
deliver a Pledge Agreement (the form of which is attached to the Stock
Purchase Agreement as Exhibit B).
(c) Other Provisions. The Stock Purchase Agreement shall contain such other
terms, provisions and conditions not inconsistent with the Plan as may be
determined by the Committee in its sole discretion.
(d) Rights as a Stockholder. Once the Stock Purchase Right is exercised, the
purchaser shall have rights equivalent to those of a stockholder and shall be
a stockholder when his or her purchase is entered upon the records of the duly
authorized transfer agent of the Company. No adjustment shall be made for a
dividend or other right for which the record date is prior to the date the
Stock Purchase Right is exercised.
(e) Legends. The stock certificate evidencing the Subject Stock shall be
endorsed with the legends required under applicable state and federal
securities laws.
VIII. Time of Granting Stock Purchase Rights. The date of grant of a Stock
Purchase Right shall, for all purposes, be the date on which the Committee
makes the determination granting such Stock Purchase Right or such other date
as is determined by the Committee. Notice of the determination shall be given
to the Offeree to whom a Stock Purchase Right is so granted within a
reasonable time after the date of such grant.
IX. Amendment and Termination of Plan.
(a) Amendment and Termination. The Board may at any time amend, alter,
suspend or terminate the Plan.
(b) Stockholder Approval. The Board shall obtain stockholder approval of any
Plan amendment to the extent necessary and desirable to comply with Applicable
Laws.
(c) Effect of Amendment or Termination. No amendment, alteration, suspension
or termination of the Plan shall impair the rights of any Offeree, unless
mutually agreed to by the Offeree and the Committee, which agreement must be
in writing and signed by the Offeree and the Company. Termination of the Plan
shall not affect the Committee's ability to exercise the powers granted to it
hereunder with respect to Stock Purchase Rights granted under the Plan prior
to the date of such termination.
X. Miscellaneous.
(a) Conditions Upon Issuance of Shares. Shares shall not be issued pursuant
to the exercise of a Stock Purchase Right unless the exercise of such Stock
Purchase Right and the issuance and delivery of such Shares shall comply with
Applicable Laws and shall be further subject to the approval of counsel for
the Company with respect to such compliance.
(b) Inability to Obtain Authority. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful
B-3
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issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
(c) Reservation of Shares. The Company during the term of this Plan, shall
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
(d) Stockholder Approval. The Plan shall be subject to approval by the
stockholders of the Company within twelve (12) months after the date the Plan
is adopted. Such stockholder approval shall be obtained in the degree and
manner required under Applicable Laws.
B-4
<PAGE>
EXHIBIT C
FIRSTWORLD COMMUNICATIONS, INC.
QUARTERLY BONUS PROGRAM
PLAN DESCRIPTION
This document describes the terms and conditions which govern the FirstWorld
Communications, Inc. ("FirstWorld") Quarterly Bonus Program (the "Program" or
the "Plan"). The terms and conditions set forth herein shall control the
payment of bonuses to those employees covered by the Program. The Program does
not alter, vary or amend the provisions contained in FirstWorld's employee
handbook; provided, however, to the extent the employee handbook includes
provisions regarding bonuses which contradict the terms and conditions of the
Program, the terms and conditions of the Program shall control.
Neither the existence of the Program, nor the terms and conditions set forth
herein, create nor should they be construed to create an express or implied
contract of employment. All employment with FirstWorld is "at will," and may
be terminated at any time, with or without notice and with or without cause,
by FirstWorld or the employee. FirstWorld managers do not have the authority
to modify or alter an employee's "at will" status. An employee's "at will"
status may be modified or altered only by written agreement signed by the
employee and FirstWorld's President.
This Program has been adopted and exists at the sole discretion of
FirstWorld. FirstWorld (acting through its Compensation Committee) may cancel,
modify or alter the Program, in whole or in part, at any time, for any reason,
with or without prior notice. FirstWorld (acting through its Compensation
Committee) shall have the exclusive authority to interpret and apply the terms
and conditions of the Program. Interpretations and applications made by the
Compensation Committee shall be binding on participants in the Program.
I. COVERED EMPLOYEES
Except as otherwise described herein, the Program applies to non-
commissioned employees of FirstWorld, including employees of controlled
subsidiaries of FirstWorld, who are scheduled to work 40 hours or more per
week ("Plan Participants").
Temporary contract employees are not eligible to participate in the
Program.
II. TERM
The Program shall become effective on the date on which the Program is
approved by FirstWorld's Board of Directors. The Program covers the period
of January 1, 1999 through December 31, 1999 and each year thereafter so
long as the Program remains in effect (each, a "Plan Year"). FirstWorld
(acting through its Compensation Committee) reserves the right to cancel,
modify or alter the Program, in whole or in part, at any time, for any
reason, with or without prior notice.
III. ADMINISTRATION OF THE PROGRAM
The Program shall be administered by the Compensation Committee of
FirstWorld (the "Compensation Committee"). Subject to the provisions of the
Program, the Compensation Committee shall have the plenary authority to:
(i) interpret the Program; (ii) make such rules as it deems necessary for
the proper administration of the Program; (iii) make all other
determinations necessary or advisable for the administration of the
Program; and (iv) correct any defect or supply any omission or reconcile
any inconsistency in the Plan in the manner and to the extent that the
Compensation Committee deems advisable. All determinations and decisions
made by the Compensation Committee shall be made in its discretion pursuant
to the provisions of the Plan, and shall be final, conclusive and binding
on all persons including FirstWorld and Plan Participants.
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<PAGE>
IV. MAXIMUM BONUS
The following are the maximum bonuses ("Maximum Bonuses") available
quarterly to Plan Participants under the Program:
<TABLE>
<S> <C>
Senior Vice Presidents--
Executive Vice Presidents 30%-35% of total quarterly compensation,
unless a different target percentage bonus is
set forth in the applicable employment
agreement
Vice Presidents 25% of total quarterly compensation
Directors 20% of total quarterly compensation
Managers 15% of total quarterly compensation
Positions Subordinate to
Manager 10% of total quarterly compensation
</TABLE>
This Program is implemented, in part, to encourage retention, as such,
the Fourth Quarter Bonus (as defined in Section VI) includes an amount
equal to the First, Second and Third Quarter Bonuses (as defined in Section
VI) and is earned and payable if the Plan Participant is employed on the
date the Fourth Quarter Bonus is paid.
For the purposes of the Program, "total compensation" includes base pay,
overtime, shift differential and any paid time off (holidays, vacation,
etc.) used by the Plan Participant during the quarter for which the bonus
is calculated.
V. BONUS CRITERIA
Bonuses will be calculated based upon the following weighted criteria:
(i)FirstWorld Revenues--weighted 75%
(ii)Individual Employee Performance--weighted 25%
1. The Revenue Criteria.
Seventy-five percent (75%) of a Plan Participant's bonus will be based
upon the revenues of the FirstWorld profit and loss center (each a "Profit
and Loss Center") in which the Plan Participant works. At the beginning of
the Plan Year, FirstWorld will establish quarterly revenue goals for each
of its Profit and Loss Centers. FirstWorld shall have complete discretion
over the setting of the quarterly revenue goals. Quarterly revenue goals
will be made available to Plan Participants on an annual basis for each
Plan Year that the Program remains in effect. Quarterly revenue goals are
subject to adjustment by FirstWorld.
If the Plan Participant's Profit and Loss Center achieves its quarterly
revenue goal, then the Plan Participant will qualify for the full 75%
revenue bonus. If the Plan Participant's Profit and Loss Center fails to
meet its quarterly revenue goal, then the revenue bonus will be reduced
based upon the amount of quarterly revenue actually achieved. For example,
if a Profit and Loss Center achieves 90% of its quarterly revenue goal,
then Plan Participants will qualify for a revenue bonus of 67.5% (90% of
the full 75% revenue based portion of the bonus).
If a Profit and Loss Center fails to achieve 75% of its quarterly revenue
goal, then Plan Participants in the Profit and Loss Center will not receive
a quarterly bonus, regardless of their individual performance.
2. Individual Employee Performance Criteria.
The remaining twenty-five percent (25%) of the total quarterly bonus will
be based upon the Plan Participant's individual performance during the
quarter. At the end of each quarter, the Plan Participant's
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direct supervisor will conduct a performance review. A copy of the
performance appraisal form which supervisors will utilize during the review
process is attached as Appendix A.
As part of the review, the Plan Participant will receive a rating, based
upon his or her overall performance. The following ratings will be
utilized:
<TABLE>
<S> <C>
Rating Levels: (5) Outstanding
(4) Very Good
(3) Competent
(2) Needs Improvement
(1) Unsatisfactory
</TABLE>
Only those Plan Participants who receive an overall rating of 3.0 or
higher will qualify for a quarterly bonus. Plan Participants scoring below
3.0 will not qualify for a quarterly bonus, regardless of whether their
Profit and Loss Center achieves its revenue goals. Additionally, any Plan
Participant scoring below 3.0 should expect to have a performance
counseling session with their supervisor to discuss individual performance
expectations and strategies for improvement.
Outstanding Performance: Plan Participants who receive performance
ratings of 4.5 to 5.0 will receive an additional 5% towards their
individual performance criteria. This will allow such employees to receive
a 30% individual performance bonus, versus the standard 25%.
Based upon their performance ratings, Plan Participants will receive the
following individual performance bonuses:
<TABLE>
<CAPTION>
Rating Bonus
------ -----
<S> <C>
4.5 to 5.0 30% out of a possible 25%
3.75 to 4.49 25% out of a possible 25%
3.0 to 3.74 20% out of a possible 25%
</TABLE>
3. Employee Retention Criteria.
As stated earlier, this Program is structured, in part, to encourage
retention, as such, the Fourth Quarter Bonus (as defined in Section VI)
includes an amount equal to the First, Second and Third Quarter Bonuses (as
defined in Section VI) and is earned and payable if the Plan Participant is
employed on the date the Fourth Quarter Bonus is paid.
VI. BONUS CALCULATIONS
Once the quarterly revenue for each Profit and Loss Center is calculated
(approximately four to six weeks after the end of the quarter), and the
individual performance reviews are complete, FirstWorld will determine each
Plan Participant's eligibility for a quarterly bonus. If Plan Participants
meet the minimum revenue and individual performance requirements discussed
above, and are still employed by FirstWorld, their bonuses for each quarter
will be calculated as follows:
First Quarter
((revenue bonus + individual performance bonus) x maximum bonus) x .5 =
First Quarter Bonus
Second Quarter
((revenue bonus + individual performance bonus) x maximum bonus) x .5 =
Second Quarter Bonus
Third Quarter
((revenue bonus + individual performance bonus) x maximum bonus) x .5 =
Third Quarter Bonus
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<PAGE>
Fourth Quarter
((revenue bonus + individual performance bonus) x maximum bonus) +
First Quarter Bonus + Second Quarter Bonus + Third Quarter Bonus =
Fourth Quarter Bonus
If a Plan Participant qualifies for a bonus, bonus checks will be issued
according to FirstWorld's regular payroll practices. Plan Participants have
no vested interest in any bonus under the Program until a bonus check is
issued. Plan Participants must be employed with FirstWorld on the date the
bonus check is issued in order to earn the bonus.
VII. EXAMPLE OF BONUS CALCULATION
The following example is presented as an illustration of the bonus
formulas, criteria, and rules utilized in the Program.
Example: Employee is a non-commissioned Manager. Employee's total
compensation is $40,000 per year, or $10,000 per quarter.
During the first quarter of the Plan Year, employee's Profit and Loss
Center achieves 80% of its quarterly goal, and employee receives an
individual performance rating of 4.1.
During the second quarter of the Plan Year, Employee's Profit and Loss
Center achieves 90% of its quarterly goal, and employee receives an
individual performance rating of 3.7.
During the third quarter of the Plan Year, Employee's Profit and Loss
Center achieves 70% of its quarterly goal, and employee receives an
individual performance rating of 4.5.
During the fourth quarter of the Plan year, Employee's Profit and Loss
Center achieves 100% of its quarterly goal, and employee receives an
individual performance rating of 4.7.
First Quarter Bonus Calculations: Based upon his revenue bonus and
individual performance bonus scored, employee qualifies for a bonus for the
first quarter. As noted above, the first quarter bonus formula is:
((revenue bonus + individual performance bonus) x maximum bonus) x .5 =
First Quarter Bonus
Employee's revenue bonus is 60% (80% of 75%). His individual performance
bonus is 25% (3.75-4.49 = 25% out of a possible 25%). His maximum bonus is
$1,500 (15% of quarterly total compensation). Thus, Employee's first
quarter bonus calculates as follows:
((60% + 25%) x $1,500) x .5 = $637.50 First Quarter Bonus
Second Quarter Bonus Calculations: Based upon his revenue bonus and
individual performance bonus scored, employee qualifies for a bonus for the
second quarter. As noted above, the second quarter bonus formula is:
((revenue bonus + individual performance bonus) x maximum bonus) x .5 =
Second Quarter Bonus
Employee's revenue bonus is 67.5% (90% of 75%). His individual
performance bonus is 20% (3.0-3.74 = 20% out of a possible 25%). His
maximum bonus is $1,500 (15% of quarterly total compensation). Thus,
Employee's second quarter bonus calculates as follows:
((67.5% + 20%) x $1,500) x .5 = $656.25 Second Quarter Bonus
Third Quarter Bonus: Even though employee's individual performance bonus
score placed him in the exceptional range, employee's Profit and Loss
Center did not achieve 75% of its quarter goal for the third quarter.
Therefore, employee's third quarter bonus is $0.
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<PAGE>
Fourth Quarter Bonus Calculations: Based upon his revenue bonus and
individual performance bonus scored, employee qualifies for a bonus for the
fourth quarter. As noted above, the fourth quarter bonus formula is:
((revenue bonus + individual performance bonus) x maximum bonus) +
First Quarter Bonus + Second Quarter Bonus + Third Quarter Bonus =
Fourth Quarter Bonus
Employee's revenue bonus is 75% (100% of 75%). His individual performance
bonus is 30% (4.5-5.0 = 30% out of a possible 25%). His maximum bonus is
$1,500 (15% of quarterly total compensation). Thus, employee's fourth
quarter bonus calculates as follows:
((75% + 30%) x $1,500) + $637.50 + $656.25 + $0 = $2,868.75 Fourth
Quarter Bonus
VIII. OPTION TO ACQUIRE BONUS IN STOCK
1. Eligibility. Certain Plan Participants may elect to receive the bonus
they earned during a particular period in shares of Series B Common Stock,
$0.0001 par value per share of FirstWorld ("Shares") in lieu of a cash
payment. Subject in all cases to compliance with applicable state and
federal securities laws, Plan Participants who report directly to
FirstWorld's President and Chief Executive Officer ("Eligible Plan
Participants") are eligible to make an election to receive their bonus in
Shares.
2. Shares Subject to the Program.
a. Number of Shares. Subject to adjustment as provided in subsection
(c) below, the aggregate number of Shares that may be awarded under the
Program shall be Two Hundred Thousand (200,000).
b. Shares to be Delivered. Shares delivered under the Program shall
be authorized but unissued Shares or, if the Compensation Committee so
decides in its sole discretion, previously issued Shares acquired by
FirstWorld and held in its treasury.
c. Changes in Stock. In the event of a stock dividend, stock split or
combination of shares, recapitalization or other change in FirstWorld's
capital stock, the maximum number of shares or securities that may be
delivered under the Program and other relevant provisions shall be
appropriately adjusted by the Compensation Committee, whose
determination shall be binding on all persons.
3. Issuance of Shares. An Eligible Plan Participant must notify
FirstWorld of his/her election to receive his/her bonus in Shares before
the date bonuses would be paid out. An Eligible Plan Participant may elect
to receive all or a certain portion of his/her bonus in Shares; provided,
however, that an election to receive Shares must be for a minimum of 50% of
such Eligible Plan Participant's bonus. The number of Shares to which the
Eligible Plan Participant would be entitled will equal the cash bonus that
the Eligible Plan Participant would have received but for his/her election
to receive Shares, divided by the Fair Market Value of a Share (as defined
below) on the date the bonus payment is made. The Eligible Plan Participant
would be required to pay taxes and other applicable withholdings on the
dollar value of the quarterly bonus received before FirstWorld is required
to issue the Shares. The number of Shares to be issued will be rounded down
to the next full Share. Certificates representing such Shares will be
issued in the name of the Eligible Plan Participant as soon as reasonably
practical.
As used herein, "Fair Market Value of a Share" as of a given date shall
be: (i) the closing price of a Share on the principal exchange on which
Shares are then trading, if any (or as reported on any composite index
which includes such principal exchange), on the trading day previous to
such date, or if Shares were not traded on the trading day previous to such
date, then on the next preceding date on which a trade occurred; or (ii) if
Shares are not traded on an exchange but are quoted on NASDAQ or a
successor quotation system, the mean between the closing representative bid
and asked prices for the Shares on the trading day previous to such date as
reported by NASDAQ or such successor quotation system; or (iii) if Shares
are not publicly traded on an exchange and not quoted on NASDAQ or a
successor quotation system, the Fair Market Value of a Share shall be
established by the Board of Directors acting in good faith, giving
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<PAGE>
predominate weight to the earnings history, book value and prospects of
FirstWorld in light of market and industry conditions generally.
4. Legal and Regulatory Matters. The delivery of Shares pursuant to the
Program shall be subject to compliance with: (i) any actions required by
governmental authorities in connection with the authorization, issuance,
sale or delivery of such Shares, as well as applicable federal, state and
foreign securities laws; (ii) if the outstanding Shares are listed at the
time on any securities exchange or automated quotation system, the listing
requirements of such exchange or system; and (iii) FirstWorld's counsel's
approval of all other legal matters in connection with the issuance and
delivery of the Shares.
5. No Rights as a Stockholder Until Certificate Issued. An Eligible Plan
Participant shall not be deemed to be a stockholder and shall not have any
of the rights or privileges of a stockholder until a stock certificate has
been issued in the name of such Eligible Plan Participant in accordance
with the terms and conditions of the Program.
IX. TRANSFER TO POSITION NOT COVERED BY PROGRAM
FirstWorld may, in its sole discretion, transfer a Plan Participant to a
new or different job position at any time. If a Plan Participant is
transferred to a position not covered by the Program, the Plan Participant
will cease participation under the Program as of the effective date of the
transfer. However, for the quarter when the transfer occurs, the Plan
Participant will receive a pro rata share of any bonus for which he or she
would otherwise qualify under the Program.
X. HIRE OR TRANSFER TO COVERED POSITION OR CHANGE IN PROFIT AND LOSS CENTER
If a non-Plan Participant is hired or transferred to a position covered
by the Program, he or she will become a Plan Participant effective the
first day of the quarter beginning after the effective date of the hire or
transfer. If a Plan Participant is transferred from one Profit and Loss
Center to another, the Plan Participant's bonus calculation will be based
on the Profit and Loss Center in which that Plan Participant is located at
the end of the quarter for which the bonus is calculated.
XI. TERMINATION OF EMPLOYMENT
As stated above, all FirstWorld personnel are employed on an "at will"
basis. The employment relationship may be terminated by FirstWorld or the
employee at any time, for any reason, with or without cause or notice. As a
condition of their participation in the Program, Plan Participants
understand and agree that the bonuses under the Program are provided to
encourage employee retention. Plan Participants further understand and
agree that, unless the terms and conditions of the Program specifically
provide otherwise, they must be employed on the date a bonus check is
issued in order to receive a bonus.
A. Reduction in Force
If a Plan Participant's employment is terminated due to a "reduction
in force," the Plan Participant will cease participation under the
Program as of the effective date of the termination. However, if the
Plan Participant is so terminated in the first, second, or third
quarter, the Plan Participant will receive a pro rata share of any
bonus for which he or she would otherwise qualify under the Program. If
the Plan Participant is so terminated in the fourth quarter, the Plan
Participant will receive a pro rata share of a bonus for the fourth
quarter, such proration will be calculated against the following
formula: Fourth Quarter ((revenue bonus + individual performance bonus)
x maximum bonus) x .5.
As used herein, "reduction in force" means a workforce reduction
resulting in the termination of multiple personnel motivated by
economic or business considerations, including without limitation, an
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<PAGE>
internal reorganization, overstaffing or declining demand for
FirstWorld services in the marketplace, as opposed to individual
terminations, whether or not motivated by poor performance.
B. Termination by the Plan Participant
If a Plan Participant voluntarily terminates his or her employment
with FirstWorld, the Plan Participant will have no right to any bonus
under the Program after the date of the termination.
C. Termination by FirstWorld
Unless the terms and conditions of the Program specifically provide
otherwise, if FirstWorld terminates a Plan Participant from his or her
employment, the Plan Participant will have no right to any bonus under
the Program after the date of the termination.
XII. WITHHOLDING REQUIREMENTS AND ARRANGEMENTS
Each recipient of a bonus under the Program shall pay to FirstWorld or
make provision satisfactory to the Compensation Committee for payment of
any taxes required by law to be withheld in respect of bonuses under the
Program no later than the date of the event creating the tax liability. In
the Compensation Committee's discretion, such tax obligations may be paid
in whole or in part in Shares, including Shares obtained in connection with
the bonus, valued at their Fair Market Value on the date of delivery.
FirstWorld may, to the extent permitted by law, deduct any such tax
obligations from any payment of any kind otherwise due to the recipient.
XIII. AMENDMENTS OR MODIFICATIONS
The Compensation Committee may at any time discontinue granting bonuses
under the Program. The Compensation Committee also may modify, amend,
suspend or terminate the Program in whole or in part at any time; provided,
however, that no modification, amendment, suspension or termination of the
Program shall be made without stockholder approval if such approval is
necessary to comply with any applicable tax, regulatory or securities
requirements or the requirements of any exchange or automated quotation
system which Shares are then trading; and provided, further, that such
modification, amendment, suspension or termination shall not affect
adversely the rights of any previous recipient of a bonus under the Program
regardless of whether such bonus was paid in cash or Shares.
XIV. GOVERNING LAW
This Plan shall be governed and construed in accordance with the laws of
the State of Delaware to the extent not preempted by federal law.
XV. NO GUARANTEE OF TAX CONSEQUENCES
FirstWorld does not make any commitment or guarantee that any tax
treatment will apply or be available to any person participating or
eligible to participate in the Program, including, without limitation, any
tax imposed by the United States or any state thereof, any estate tax or
any tax imposed by a foreign government.
XVI. ADOPTION BY FIRSTWORLD
The above description of the FirstWorld Communications Quarterly Bonus
Program is duly approved and adopted as of this 3rd day of May, 1999.
/s/ Sheldon S. Ohringer
Sheldon S. Ohringer
President
FirstWorld Communications, Inc.
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FIRSTWORLD COMMUNICATIONS, INC.
ANNUAL MEETING OF STOCKHOLDERS -- JUNE 3, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Sheldon S. Ohringer and Jeffrey L. Dykes each
of them, as proxies of the undersigned, each with full power to appoint his
substitute, and hereby authorizes them to represent and to vote all shares of
common stock, both Series A and Series B, of FirstWorld Communications, Inc.
which the undersigned is entitled to vote, as specified below, at the Annual
Meeting of Stockholders of FirstWorld Communications, Inc. to be held at 10:00
a.m. (MDT) on Thursday, June 3, 1999 at the Hyatt Regency Tech Center, 7800
Tufts Avenue, Denver CO 80237 and at any postponement or adjournment thereof.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and revokes any proxy heretofore given with respect to such
meeting.
This proxy when properly executed, will be voted in the manner directed
herein by the undersigned stockholder. If no direction is given, this proxy
will be voted FOR the election of the nominees listed in Proposal 1, FOR the
approval of the adoption of The 1999 Equity Incentive Plan of FirstWorld
Communications, Inc., FOR the approval of the adoption of the 1998 Stock
Purchase Plan of FirstWorld Communications, Inc. and FOR the approval of the
adoption of the FirstWorld Communications, Inc. Quarterly Bonus Program.
(Continued and to be signed on the other side)
<PAGE>
- --------------------------------------------------------------------------------
[X] Please mark vote as in this example.
1.Election of directors:
Directors to be elected by the holders of Series A common stock and Series B
common stock, voting together as a class:
[_] FOR all nominees listed to the right Nominees: Donald L. Sturm
(except as indicated) Sheldon S. Ohringer
C. Kevin Garland
[_] WITHHOLD AUTHORITY to vote for all James O. Spitzenber
nominees listed to the right Melanie Sturm
Stephen R. Horn
Directors to be elected by the holders of
Series B common stock:
[_] FOR the nominee listed to the right Nominee: John C. Stiska
(except as indicated)
[_] WITHHOLD AUTHORITY to vote for the
nominee listed to the right
Instruction: To withhold authority to vote for any individual nominee, write
such nominee's name in the space provided below.
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2. Approval of the adoption of the 1999 [_] For [_] Against [_] Abstain
Equity Incentive Plan of FirstWorld
Communications, Inc.
3. Approval of the adoption of the 1998 [_] For [_] Against [_] Abstain
Stock Purchase Plan of FirstWorld
Communications, Inc.
4. Approval of the adoption of the [_] For [_] Against [_] Abstain
FirstWorld Communications, Inc.
Quarterly Bonus Program
NOTE: The proxies of the undersigned may vote according to their
discretion on any other matter that may properly be brought
before the Annual Meeting or any adjournment thereof.
Please sign exactly as your name(s) appear(s)
on this Proxy. If shares of stock stand of
record in the names of two or more persons or
in the name of husband and wife, whether as
joint tenants or otherwise, both or all of
such persons should sign this Proxy. If
shares of stock are held of record by a
corporation, the Proxy should be executed by
the president or vice president and the sec-
retary or assistant secretary of the corpo-
ration. Executors, administrators or other
fiduciaries who execute this Proxy for a de-
ceased stockholder should state their full
title. Please mark, sign, date and return
this Proxy promptly using the enclosed enve-
lope.
Signature(s)_________________________________
Date_________________________________________
