<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:
[X] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] 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:
-------------------------------------------------------------------------
(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:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
Preliminary Copies
FIRSTWORLD COMMUNICATIONS, INC.
8390 East Crescent Parkway, Suite 300
Greenwood Village, Colorado 80111
(303) 874-8010
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 12, 2000
To The Stockholders Of FirstWorld Communications, Inc.:
Notice Is Hereby Given that the Annual Meeting of Stockholders of
FirstWorld Communications, Inc., a Delaware corporation (the "Company"), will be
held on June 12, 2000, at 8:30 a.m. local time at the Denver Marriott Southeast,
6363 East Hampden Avenue, Denver, Colorado for the following purposes:
1. To elect directors to serve until their successors are elected and
qualified.
2. To approve an amendment to the Company's Restated Certificate of
Incorporation to increase the authorized number of shares of Common Stock
from 100,000,000 to 500,000,000 shares and to increase the number of shares
designated Series B Common Stock from 89,864,836 to 489,864,836.
3. To approve the adoption of the Company's 1999 Employee Stock Purchase Plan.
4. To approve an amendment to the 1999 Equity Incentive Plan to effect an
increase in the number of shares of Series B Common Stock reserved for
issuance under the 1999 Equity Incentive Plan from 5,000,000 to 13,200,000.
5. To ratify the appointment of PricewaterhouseCoopers LLP as independent
accountants of the Company for the fiscal year ending December 31, 2000.
6. To transact such other business as may properly come before the meeting or
any adjournment or postponement 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 21, 2000 as
the record date for the determination of stockholders entitled to notice of and
to vote at this Annual Meeting and at any adjournment or postponement thereof.
By Order of the Board of Directors
Jeffrey L. Dykes, Esq.
Secretary
Greenwood Village, CO
May 3, 2000
- --------------------------------------------------------------------------------
All Stockholders are cordially invited to attend the meeting in person.
Whether or not you expect to attend the meeting, please complete, date, sign and
return the enclosed proxy as promptly as possible in order to ensure your
representation at the meeting. A return envelope (which is postage prepaid if
mailed in the United States) is enclosed for that purpose. Even if you have
given your proxy, you may still vote in person if you attend the meeting.
Please note, however, that if your shares are held of record by a broker, bank
or other nominee and you wish to vote at the meeting, you must obtain from the
record holder a proxy issued in your name. You may also vote via the Internet
or by telephone. See "Voting Through the Internet or by Telephone."
- --------------------------------------------------------------------------------
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
8390 East Crescent Parkway, Suite 300
Greenwood Village, Colorado 80111
(303) 874-8010
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
June 12, 2000
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed proxy is solicited on behalf of the Board of Directors (the
"Board") of FirstWorld Communications, Inc., a Delaware corporation, for use at
the Annual Meeting of Stockholders to be held on June 12, 2000, at 8:30 a.m.
local time or at any adjournment or postponement thereof, for the purposes set
forth herein and in the accompanying Notice of Annual Meeting. The Annual
Meeting will be held at the Denver Marriott Southeast, 6363 East Hampden Avenue,
Denver, Colorado. The Company intends to mail this proxy statement and
accompanying proxy card on or about May 3, 2000 to all stockholders entitled to
vote at the Annual Meeting.
In this proxy statement, the Company, FirstWorld, we, us and our refer to
FirstWorld Communications, Inc. and its subsidiaries, unless the context
otherwise requires. The term Enron refers to Enron Corp. and its direct and
indirect subsidiaries collectively. The term Texas Pacific Group refers to Texas
Pacific Group and its affiliates and co-investors, including Colony Investors
IV, L.P.
Solicitation
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
card and any additional information furnished to stockholders. Copies of
solicitation materials will be furnished to banks, brokerage houses, fiduciaries
and custodians holding in their names shares of Common Stock beneficially owned
by others to forward to such beneficial owners. The Company may reimburse
persons representing beneficial owners of Common Stock for their costs of
forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of the
Company. No additional compensation will be paid to directors, officers or
other regular employees for such services.
Voting Rights and Outstanding Shares
Only holders of record of Series A Common Stock or Series B Common Stock at
the close of business on April 21, 2000 will be entitled to notice of and to
vote at the Annual Meeting. At the close of business on March 31, 2000, the
Company had outstanding and entitled to vote 5,101,831 shares of Series A Common
Stock and 45,938,241 shares of Series B Common Stock.
Each holder of record of Series A Common Stock on such date will be
entitled to ten votes for each share held on all matters to be voted upon at the
Annual Meeting. Each holder of record of Series B Common Stock on such date will
be entitled to one vote for each share held on all matters to be voted upon at
the Annual Meeting. No cumulative voting is permitted with respect to any
proposal.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
1.
<PAGE>
Revocability of Proxies
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 8390 East
Crescent Parkway, Suite 300, Greenwood Village, Colorado 80111, a written notice
of revocation or a duly executed proxy bearing a later date, or it may be
revoked by attending the meeting and voting in person. Attendance at the
meeting will not, by itself, revoke a proxy.
Stockholder Proposals
The deadline for submitting a stockholder proposal for inclusion in the
Company's proxy statement and form of proxy for the Company's 2001 annual
meeting of stockholders pursuant to Rule 14a-8 of the Securities and Exchange
Commission is January 4, 2001. Stockholders wishing to submit proposals or
director nominations that are not to be included in such proxy statement and
proxy must submit such proposal or director nomination to the Secretary of the
Company not fewer than 60 days before the date of the Company's 2001 annual
meeting.
Voting Through the Internet or by Telephone
Instead of submitting your vote by mail on the enclosed proxy card, you can
vote electronically by submitting your proxy through the Internet or by calling
1-800-240-6326. Please note that there are separate arrangements for voting via
the Internet or by telephone depending on whether shares are registered in the
Company's stock records in your name or in the name of a brokerage firm or bank.
The Internet and telephone voting procedures are designed to
authenticate stockholders' identities, to allow stockholders to vote their
shares and to confirm that their instructions have been properly recorded.
Stockholders voting via the Internet through Norwest Shareowner Services should
understand that there may be costs associated with electronic access, such as
usage charges from Internet access providers and telephone companies, that would
be borne by the stockholder.
For Shares Registered Directly in the Name of the Stockholder
Stockholders with shares registered directly in their name in the Company's
stock records maintained by our transfer agent, Norwest Shareowner Services, may
vote their shares (1) by submitting their proxy through the Internet at the
following address on the World Wide Web: http://www.eproxy.com/FWIS, (2) by
--------------------------
calling 1-800-240-6326 or (3) by mailing their signed proxy card. Specific
instructions to be followed by registered stockholders are set forth on the
enclosed proxy card. Proxies submitted through the Internet through Norwest
Shareowner Services as described above must be received by midnight on
June 11, 2000.
For Shares Registered in the Name of a Brokerage Firm or Bank
A number of brokerage firms and banks are participating in a program
provided through ADP Investor Communication Services that offers telephone and
Internet voting options. That program is different from the program provided by
Norwest shareowner Services for shares registered in the name of the
stockholder. If your shares are held in an account at a brokerage firm or bank
participating in the ADP Program, you may vote those shares through the Internet
in accordance with instructions set forth on the voting form. Votes submitted
through the Internet through the ADP Program must be received by midnight on
June 11, 2000.
Revocation of Proxies Submitted Electronically
To revoke a proxy previously submitted electronically through the Internet,
you may simply vote again at a later date, using the same procedures, in which
case your later submitted vote will be recorded and your earlier vote revoked.
2.
<PAGE>
Proposal 1
----------
Election of Directors
General
The Company's Board of Directors currently consists of eight 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 seven 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 majority 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 majority 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
majority 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.
The present Board 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 seven persons:
Donald L. Sturm; Sheldon S. Ohringer; William S. Price, III; James O.
Spitzenberger; Melanie L. Sturm; Thomas J. Barrack, Jr.; and John G.
Donoghue.
The present Board 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
The table below indicates the name, position with the Company and age of each
nominee for director as of April 30, 2000:
<TABLE>
<CAPTION>
Name Age Position Director Since
---- ----- -------- --------------
<S> <C> <C> <C>
Donald L. Sturm (1) ............. 68 Chairman of the Board January 1998
Sheldon S. Ohringer (1).......... 42 President, Chief Executive Officer and Director October 1998
James O. Spitzenberger (2)....... 56 Director January 1998
Melanie L. Sturm (3)............. 38 Director January 1998
Thomas J. Barrack, Jr............ 53 Director March 2000
William S. Price, III (3)........ 44 Director March 2000
John C. Stiska (2)............... 58 Director October 1998
John G. Donoghue (2)............. 34 Director April 2000
</TABLE>
- -----------
- -------------------------
(1) Member of the Chairman's Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
Donald L. Sturm. Mr. Sturm has been Chairman of our board of directors and
head of the Chairman's Committee since January 1998. Mr. Sturm served as
President of the Company from January 1998 through September 1998 and as Chief
Executive Officer from March 1998 through September 1998. Since December 1991,
3.
<PAGE>
Mr. Sturm has been a private equity investor, with interests in
telecommunications, banking and real estate, 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 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., a
construction, coal mining and telecommunications company that has made
significant investments in other industries. In 1984, Mr. Sturm led Peter Kiewit
Sons' $3.5 billion acquisition of The Continental Group Inc. and became the
Continental Group's Chairman and Chief Executive Officer, positions he held
until Peter Kiewit Sons' sold the Continental Group in 1991. While Vice Chairman
of Peter Kiewit Sons', Mr. Sturm participated in decisions to invest in MFS
Communications which was taken public in 1993 and sold to MCI WorldCom in 1996
for approximately $14.4 billion. Mr. Sturm owns significant ownership interests
in MCI WorldCom, Level 3 Communications, Inc., HarvardNet and KAPT, a
telecommunications company based in Paris, France.
Sheldon S. Ohringer. Mr. Ohringer has been Chief Executive Officer,
President, a director of FirstWorld and a member of the Chairman's Committee
since October 1, 1998. Beginning in November 1994, Mr. Ohringer served in
various capacities for ICG Communications, Inc., most recently as Executive Vice
President--Telecom of ICG Communications and President of ICG Telecom Group,
Inc., an operating subsidiary of ICG Communications. Before working for ICG,
Mr. Ohringer was Senior Vice President of Sales and Business Development for
U.S. Long Distance Corp. from May 1991 until October 1994. From May 1984 until
August 1990, Mr. Ohringer held key management and executive positions with
Telecom* USA, a long distance carrier which was acquired by MCI WorldCom in
1990. In 1999, Mr. Ohringer was appointed Commissioner to the Colorado
Commission on Science and Technology. As Commissioner, Mr. Ohringer advises the
Governor of Colorado on Internet and telecommunications issues. Mr. Ohringer is
an executive member of the board of directors for the Association for Local
Telecommunications Services (ALTS), the leading local competitive
telecommunications association in the United States of America. Mr. Ohringer
received a B.A. degree in Business Administration from the University of Iowa in
December 1979.
James O. Spitzenberger. Mr. Spitzenberger has been a director of FirstWorld
and a member of the Audit Committee since January 1998 and Chairman of the Audit
Committee since June 1999. Mr. Spitzenberger has been a private equity investor
since July 1996. Prior to July 1996, Mr. Spitzenberger was a Vice President of
Peter Kiewit Sons' Inc, which he joined in February 1981. While at Peter Kiewit
Sons' Inc., Mr. Spitzenberger served as Director of Taxation. Prior to joining
Peter Kiewit Sons' Inc, Mr. Spitzenberger was a tax manager with Arthur Andersen
LLP.
John C. Stiska. Mr. Stiska has been a director of FirstWorld since September
1997, and was appointed a member of the Audit Committee in June 1999. 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 Group 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. During that time, he also served on the
board of directors of Triton's subsidiaries, two of which were publicly traded:
Mission West Properties and Ridgewood Properties, Inc. Mr. Stiska has practiced
law for over 25 years, specializing in corporate law, mergers and acquisitions
and securities law. In July 1998, Mr. Stiska joined the law firm of Latham &
Watkins as of-counsel. Mr. Stiska serves on the board of directors of several
companies, including Laser Power Corporation and Websence, Inc., both of which
are publicly traded.
Melanie L. Sturm. Ms. Sturm has been a director of FirstWorld and a member of
our 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 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 with a B.A. degree in International Relations and a B.S. degree
in Economics from Tufts University and has an M.B.A. degree from INSEAD of
Fontainebleau, France. Ms. Sturm is Donald L. Sturm's daughter.
4.
<PAGE>
Thomas J. Barrack, Jr. Mr. Barrack has been a director of FirstWorld since
March 2000. Mr. Barrack has been Chairman and Chief Executive Officer of Colony
Capital, Inc. and Colony Advisors, Inc., a fund which primarily makes real-
estate-related investments, since 1991. Mr. Barrack currently serves on the
board of directors of a number of companies, including Continental Airlines,
Inc., Public Storage, Inc., Kennedy-Wilson, Inc., Kerry Properties Limited and
Megaworld Properties & Holdings, Inc. From 1987 until 1991 Mr. Barrack was a
principal with the Robert M. Bass Group, Inc. From 1982 to 1983, Mr. Barrack
served in the Reagan Administration in Washington, D.C., as Deputy Under
Secretary of the Department of the Interior. Mr. Barrack obtained his law
degree from the University of Southern California, and received his B.A. degree
from University of San Diego.
William S. Price, III. Mr. Price has been a director of FirstWorld and a
member of our Compensation Committee since March 2000. Mr. Price was a founding
partner of Texas Pacific Group in 1992. Mr. Price currently serves on the board
of directors of a number of companies, including Continental Airlines, Inc.,
Beringer Wine Estates, Del Monte Foods, Denbury Resources, Favorite Brands
International, Inc., and Advanced Telecom Group. Prior to 1992, Mr. Price was
Vice President of Strategic Planning and Business Development for G.E. Capital.
From 1985 until 1991 Mr. Price worked for the management consulting firm of Bain
and Company, attaining officer status and acting as co-head of the Financial
Services Practice. Prior to 1985, Mr. Price was an associate with the law firm
of Gibson, Dunn & Crutcher, specializing in corporate securities transactions.
Mr. Price is a member of the California Bar and graduated with honors in 1981
from the Boalt Hall School of Law at the University of California, Berkeley.
Mr. Price is also a 1978, Phi Beta Kappa graduate of Stanford University.
John Donoghue. Mr. Donoghue has been a director of FirstWorld and a member of
our Audit Committee since April 2000. Since 1995 Mr. Donoghue has been the
Senior Vice President of Consumer and Small Business Marketing at MCI Worldcom.
In that capacity Mr. Donoghue had responsibility for building and managing some
of the most well-recognized and successful brands in telecommunications
including MCI 5 Cent Sundays, 1800COLLECT, 10-10-321 and 10-10-220. During 1993
and 1994 Mr. Donohue was MCI's Vice President of Business Marketing with
responsibility for developing and managing MCI's business to business product
portfolio. From 1988 through 1993 Mr. Donoghue held a variety of sales and
marketing positions at MCI. Mr. Donoghue graduated summa cum laude from The
George Washington University with a degree in International Affairs and
Economics.
Information Regarding the Board
Board Meetings
The Company's Board held 15 meetings during the one year period ended December
31, 1999. No nominee for director who served as a director during the past year
attended fewer than 75% of the total number of meetings of the Board or the
total number of meetings of any committee on which he or she served.
Committees of the Board
Chairman's Committee. Our chairman's committee consists of Messrs. Sturm and
Ohringer. The chairman's committee is empowered to conduct all activities that
may be conducted by the Board, subject only to limitations imposed by applicable
corporation law.
Compensation Committee. Our compensation committee currently consists of Ms.
Sturm and Mr. Price. The compensation committee reviews salaries, bonuses and
stock options of our executive officers, administers our executive compensation
policies, stock option plans and the bonus program and makes recommendations to
the board for approval of certain actions. This committee serves the same
essential function as a nominating committee.
Audit Committee. Our audit committee consists of Messrs. Spitzenberger,
Stiska and Donoghue. The audit committee is primarily concerned with the
effectiveness of our accounting policies and practices, financial reporting and
internal controls. Specifically, the audit committee makes recommendations to
the Board on appointing our independent public accountants; reviews and approves
the scope of the annual examination of our books and records, reviews the audit
findings and changes recommended by the independent public accountants, monitors
the extent to which we have implemented changes recommended by the independent
public accountants or the audit committee, and provides oversight with respect
to accounting principles to be employed in our financial reporting.
In general, the rules of the National Association of Securities Dealers
require that each member of the Audit Committee be "independent" within the
meaning of NASD rules. The Board is aware of Mr. Spitzenberger's affiliation
with Donald L. Sturm and the entities he controls, as well as Mr.
Spitzenberger's affiliation with Corporate Managers, LLC, an entity controlled
by Mr. Sturm and which receives a payment of $500,000 per year as consideration
for the investment by the entities controlled by Mr. Sturm. Notwithstanding
these relationships, due to
5.
<PAGE>
Mr. Spitzenberger's former status as a certified public accountant, his ongoing
involvement with the Company's Audit Committee, and his understanding of the
Company's financial and capital structure, the Board has made the determination
that it is in the best interest of the Company and its stockholders that Mr.
Spitzenberger remain a member of the Audit Committee.
Compensation Committee Interlocks and Insider Participation
During fiscal 1999, FirstWorld's Compensation Committee consisted of Mr. C.
Kevin Garland and Ms. Sturm. Mr. Garland is an officer of an affiliate of Enron,
which during 1999 held approximately 44.5% of the Company's equity. Enron
subsequently sold all of its common stock and all but 3,000,000 warrants to
Texas Pacific Group. Due to this relationship, Mr. Garland has an indirect
interest in the arrangements and relationships between FirstWorld and Enron and
its affiliates. Mr. Garland was an appointee of Enron and resigned effective
March 3, 2000 upon Enron's sale of the Company's securities to Texas Pacific
Group.
Director Compensation
Directors who are also our employees receive no directors' fees. Mr. Stiska,
one of our non-employee directors, receives a retainer of $1,000 per month and
options to purchase 5,000 shares of Series B common stock per year under our
1997 Stock Option Plan. Mr. Donoghue, also one of our non-employee directors,
receives a retainer of $1,000 per month and has received options to purchase
25,000 shares of Series B Common Stock under the Company's 1997 Stock Option
Plan. Half of those options will vest in April 2001, and the other half will
vest in April 2002.
All non-employee directors are reimbursed for their reasonable out-of-pocket
travel expenditures. Our directors are also eligible to receive grants of stock
options under our 1997 Stock Option Plan and the 1999 Equity Incentive Plan.
The Board Of Directors Recommends
A Vote In Favor Of Proposal 1.
Proposal 2
----------
An Amendment to the Company's Certificate of Incorporation to Increase the
Number Of Authorized Shares Of Common Stock
On April 7, 2000, the Board approved an amendment to the Company's Certificate
of Incorporation, subject to stockholder approval, to increase the authorized
number of shares of Common Stock of the Company from 100,000,000 shares, $0.0001
par value per share, to 500,000,000 shares, $0.0001 par value per share, and to
increase the number of shares designated Series B Common Stock from 89,864,836
to 489,864,836. The number of authorized shares of preferred stock will remain
unchanged at 10,000,000 shares.
At March 31, 2000, 5,101,831 shares of Series A Common Stock were issued and
outstanding, 45,938,241 shares of Series B Common Stock were issued and
outstanding, 8,283,711 shares were reserved for issuance upon exercise of
outstanding options and 24,298,345 shares were reserved for issuance upon
exercise of outstanding warrants. Also as of that date, an additional 898,472
shares of Series B Common Stock were reserved for issuance under its existing
stock purchase and stock option plans (not including the increase being
requested for the 1999 Equity Incentive Plan under Proposal No. 3). The
proposed increase in the number of authorized shares of Common Stock from
100,000,000 to 500,000,000 would result in additional shares being available
for, among other things, stock splits, stock dividends, issuance from time to
time for other corporate purposes, such as acquisitions of companies or assets,
sales of stock or securities convertible into stock and issuances pursuant to
stock options or other employee benefit plans. The Company currently has no
specific plans, arrangements or understandings with respect to the issuance of
these additional shares, and no other change in the rights of stockholders is
proposed. The Company believes that the availability of the additional shares
will provide it with the flexibility to meet business
6.
<PAGE>
needs as they arise, to take advantage of favorable opportunities and to respond
to a changing corporate environment.
If the stockholders approve the amendment, the Company will file a Certificate
of Amendment of its Certificate of Incorporation with the Secretary of State of
the State of Delaware, substantially in form attached hereto as Exhibit A, which
will reflect the increase in authorized shares.
The Board Of Directors Recommends
A Vote In Favor Of Proposal 2.
Proposal 3
----------
Approval of 1999 Employee Stock Purchase Plan
In December, 1999, the Board of the Company adopted the Company's 1999
Employee Stock Purchase Plan ("Purchase Plan"), subject to stockholder approval.
There are 1,000,000 shares of Series B Common Stock reserved for issuance under
the Purchase Plan.
The Purchase Plan became effective on March 8, 2000, which was the effective
date of a registration statement filed with the Securities and Exchange
Commission covering the Company's Series B Common Stock. No shares of Series B
Common Stock have been purchased under the Purchase Plan.
Stockholders are requested in this Proposal 3 to approve the Purchase Plan.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the meeting will be
required to approve the Purchase Plan. Abstentions will be counted toward the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether this matter
has been approved.
The essential features of the Purchase Plan, as amended, are outlined below,
but the description is qualified in its entirety by reference to the Purchase
Plan itself, a copy of which is included as Exhibit B to this Proxy Statement:
Purpose
The purpose of the Purchase Plan is to provide a means by which employees of
the Company (and any parent or subsidiary of the Company designated by the Board
to participate in the Purchase Plan) may be given an opportunity to purchase
Series B Common Stock of the Company through payroll deductions, to assist the
Company in retaining the services of its employees, to secure and retain the
services of new employees, and to provide incentives for such persons to exert
maximum efforts for the success of the Company. All of the Company's
approximately 770 employees are eligible to participate in the Purchase Plan.
The rights to purchase Series B Common Stock granted under the Purchase Plan
are intended to qualify as options issued under an "employee stock purchase
plan" as that term is defined in Section 423(b) of the Internal Revenue Code of
1986, as amended (the "Code").
Administration
The Board administers the Purchase Plan and has the final power to construe
and interpret both the Purchase Plan and the rights granted under it. The Board
has the power, subject to the provisions of the Purchase Plan, to determine when
and how rights to purchase Series B Common Stock of the Company will be granted,
the provisions of each offering of such rights (which need not be identical),
and whether employees of any parent or subsidiary of the Company will be
eligible to participate in the Purchase Plan.
7.
<PAGE>
The Board has the power, which it has not yet exercised, to delegate
administration of the Purchase Plan to a committee composed of not fewer than
two members of the Board. As used herein with respect to the Purchase Plan, the
"Board" refers to any committee the Board appoints and to the Board.
Offerings
The Purchase Plan is implemented by offerings of rights to all eligible
employees from time to time by the Board. The length of an offering is
determined by the Board prior to the commencement of the offering, but under the
terms of the Purchase Plan the length of an offering may not exceed 27 months
from the first day of the offering. An offering may be broken into shorter
purchase periods. The first offering began on March 8, 2000 (the date of the
Company's initial offering of Series B Common Stock pursuant to an effective
registration statement filed with the SEC) and will end on January 31, 2001. The
initial offering will consist of two purchase periods, the first ending on July
31, 2000 and the second ending on January 31, 2001. Thereafter, offerings will
generally be one year and divided into two shorter purchase periods, unless
otherwise determined by the Board prior to the start of the offering.
Eligibility
Any person who is customarily employed at least 20 hours per week and five
months per calendar year by the Company (or by any parent or subsidiary of the
Company designated by the Board) on the first day of an offering is eligible to
participate in that offering. Officers of the Company who are "highly
compensated" as defined in the Code are eligible to participate in the Purchase
Plan.
However, no employee is eligible to participate in the Purchase Plan if,
immediately after the grant of purchase rights, the employee would own, directly
or indirectly, stock possessing 5% or more of the total combined voting power or
value of all classes of stock of the Company or of any parent or subsidiary of
the Company (including any stock which such employee may purchase under all
outstanding rights and options). In addition, no employee may purchase more
than $25,000 worth of Series B Common Stock (determined at the fair market value
of the shares at the time such rights are granted) under all employee stock
purchase plans of the Company and its affiliates in any calendar year.
Participation in the Plan
Eligible employees enroll in the Purchase Plan by delivering to the
Company, prior to the date selected by the Board as the offering date for the
offering, an agreement authorizing payroll deductions of up to 15% of such
employees' total compensation during the purchase period.
Purchase Price
The purchase price per share at which shares of Series B Common Stock are
sold in an offering under the Purchase Plan is the lower of (i) 85% of the fair
market value of a share of Series B Common Stock on first day of the offering or
(ii) 85% of the fair market value of a share of Series B Common Stock on the
purchase date.
Payment of Purchase Price; Payroll Deductions
The purchase price of the shares is accumulated by payroll deductions
over the offering. At any time during the offering, a participant may reduce,
increase or terminate his or her payroll deductions as the Board provides in the
offering. A participant may not increase or begin such payroll deductions after
the beginning of the offering, except as provided by the Board in the offering
document. All payroll deductions made for a participant are credited to his or
her account under the Purchase Plan and deposited with the general funds of the
Company. A participant may not make additional payments into such account.
8.
<PAGE>
Purchase of Stock
By executing an agreement to participate in the Purchase Plan, the employee is
entitled to purchase shares under the Purchase Plan. In connection with
offerings made under the Purchase Plan, the Board specifies a maximum number of
shares of Series B Common Stock an employee may be granted the right to purchase
and the maximum aggregate number of shares of Series B Common Stock that may be
purchased pursuant to such offering by all participants. If the aggregate
number of shares to be purchased upon exercise of rights granted in the offering
would exceed the maximum aggregate number of shares of Series B Common Stock
available, the Board would make a pro rata allocation of available shares in a
uniform and equitable manner. Unless the employee's participation is
discontinued, his or her right to purchase shares is exercised automatically at
the end of the purchase period at the applicable price. See "Withdrawal" below.
Withdrawal
While each participant in the Purchase Plan is required to sign an agreement
authorizing payroll deductions, the participant may withdraw from a given
offering by terminating his or her payroll deductions and by delivering to the
Company a notice of withdrawal from the Purchase Plan. Such withdrawal may be
elected at any time up to ten (10) days prior to the end of the applicable
purchase period.
Upon any withdrawal from an offering by the employee, the Company will
distribute to the employee his or her accumulated payroll deductions without
interest, less any accumulated deductions previously applied to the purchase of
shares of Series B Common Stock on the employee's behalf during such offering,
and such employee's interest in the offering will be automatically terminated.
The employee is not entitled to again participate in that offering. However, an
employee's withdrawal from an offering will not have any effect upon such
employee's eligibility to participate in subsequent offerings under the Purchase
Plan.
Termination of Employment
Rights granted pursuant to any offering under the Purchase Plan terminate
immediately upon cessation of an employee's employment for any reason, and the
Company will distribute to such employee all of his or her accumulated payroll
deductions, without interest.
Restrictions on Transfer
Rights granted under the Purchase Plan are not transferable and may be
exercised only by the person to whom such rights are granted.
Duration, Amendment and Termination
The Board may amend, suspend or terminate the Purchase Plan at any time. Any
amendment of the Purchase Plan must be approved by the stockholders within 12
months of its adoption by the Board if the amendment would (i) increase the
number of shares of Series B Common Stock reserved for issuance under the
Purchase Plan, (ii) modify the requirements relating to eligibility for
participation in the Purchase Plan, or (iii) modify any other provision of the
Purchase Plan in a manner that would materially increase the benefits accruing
to participants under the Purchase Plan, if such approval is required in order
to comply with the requirements of Rule 16b-3 under the Securities Exchange Act
of 1934, as amended.
Rights granted before amendment or termination of the Purchase Plan will not
be altered or impaired by any amendment or termination of the Purchase Plan
without consent of the employee to whom such rights were granted.
Effect of Certain Corporate Events
In the event of a dissolution, liquidation or specified type of merger of the
Company, (i) the surviving corporation may assume the rights under the Purchase
Plan or substitute similar rights for those under the Purchase Plan; (ii) such
rights may continue in full force and effect, or (iii) the participants'
accumulated payroll deduction
9.
<PAGE>
may be used to purchase Series B Common Stock immediately prior to the
transaction described above and the participants' rights under the ongoing
offering terminate.
Stock Subject to Purchase Plan
Subject to this Proposal, an aggregate of 1,000,000 shares of Series B Common
Stock is reserved for issuance under the Purchase Plan. If rights granted under
the Purchase Plan expire, lapse or otherwise terminate without being exercised,
the shares of Series B Common Stock not purchased under such rights again become
available for issuance under the Purchase Plan.
Federal Income Tax Information
Rights granted under the Purchase Plan are intended to qualify for favorable
federal income tax treatment associated with rights granted under an employee
stock purchase plan which qualifies under provisions of Section 423 of the Code.
A participant will be taxed on amounts withheld for the purchase of shares of
Series B Common Stock as if such amounts were actually received. Other than
this, no income will be taxable to a participant until disposition of the
acquired shares, and the method of taxation will depend upon the holding period
of the acquired shares.
If the stock is disposed of at least two years after the beginning of the
offering period and at least one year after the stock is transferred to the
participant, then the lesser of (i) the excess of the fair market value of the
stock at the time of such disposition over the exercise price or (ii) the excess
of the fair market value of the stock as of the beginning of the offering period
over the exercise price (determined as of the beginning of the offering period)
will be treated as ordinary income. Any further gain or any loss will be taxed
as a long-term capital gain or loss. Such capital gains currently are generally
subject to lower tax rates than ordinary income.
If the stock is sold or disposed of before the expiration of either of the
holding periods described above, then the excess of the fair market value of the
stock on the exercise date over the exercise price will be treated as ordinary
income at the time of such disposition. The balance of any gain will be treated
as capital gain. Even if the stock is later disposed of for less than its fair
market value on the exercise date, the same amount of ordinary income is
attributed to the participant, and a capital loss is recognized equal to the
difference between the sales price and the fair market value of the stock on
such exercise date. Any capital gain or loss will be short-term or long-term,
depending on how long the stock has been held.
There are no federal income tax consequences to the Company by reason of the
grant or exercise of rights under the Purchase Plan. The Company is entitled to
a deduction to the extent amounts are taxed as ordinary income to a participant
(subject to the requirement of reasonableness and the satisfaction of tax
reporting obligations).
The Board of Directors Recommends
a vote in favor of Proposal Number 3
Proposal 4
----------
Increase in Share Reserve under the Company's 1999 Equity Incentive Plan
The stockholders are being asked to approve an amendment to the 1999 Equity
Incentive Plan (the "Incentive Plan") to increase the number of shares reserved
for issuance thereunder by 8,200,000, or 16.07% of the total outstanding shares
of the Company on March 31, 2000. This increase would bring the total number of
shares reserved under the plan to 13,200,000.
The Board believes that the increase in the number of shares reserved for
issuance under the Incentive Plan is in the best interests of the Company
because of the continuing need to provide stock options to attract and retain
quality employees and remain competitive in the industry. The granting of
equity incentives under the Incentive
10.
<PAGE>
Plan plays an important role in the Company's efforts to attract and retain
employees of outstanding ability. The Board believes that the additional reserve
of shares with respect to which equity incentives may be granted will provide
the Company with adequate flexibility to ensure that the Company can continue to
meet its goals and facilitate the Company's expansion of its employee base.
The Board approved the proposed amendment on April 7, 2000, to be effective
upon stockholder approval. Below is a summary of the principal provisions of
the Incentive Plan, assuming stockholder approval of the amendment. A brief
description of the principal features of the Incentive Plan follows, but the
description is not necessarily complete and is qualified in its entirety by
reference to the Incentive Plan itself, a copy of which is included as Exhibit C
to this Proxy Statement.
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.
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 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 ,
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 ,
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 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 is
currently set at 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 stockholders are being asked to approve an
increase in this number by an additional 8,200,000, which would bring the total
number of shares of Series B Common Stock issuable under the Incentive Plan to
13,200,000.
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").
At March 31, 2000, options covering an aggregate of 4,900,887 shares of the
Company's Series B Common Stock were outstanding under the Incentive Plan.
99,113 shares remained available for future grant under the Incentive Plan
(without giving effect to the increase in the number of shares reserved for
issuance). 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
11.
<PAGE>
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, 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
Awards 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 770 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 below) 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 Awards, 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 Award 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 applicable restrictions
have lapsed. During the lifetime of the holder of any Award, the Award 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.
12.
<PAGE>
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 Plan 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 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.
On December 20, 1999, the Board approved the conversion of all outstanding SARs
into NQSOs effective upon the closing of the Company's initial public offering.
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 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.
13.
<PAGE>
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 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 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 Company's 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
14.
<PAGE>
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 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.
15.
<PAGE>
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 March 31, 2000, options to purchase an aggregate of 1,310,000 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 March 31, 2000,
1,155,000 options to purchase shares of Series B Common Stock have been granted
to the Named Executive Officers. As of March 31, 2000, no options to purchase
shares of Series B Common Stock have been granted to the non-employee directors
of the Company (Messrs. Sturm, Spitzenberger, Price, Barrack, Donoghue and
Stiska and Ms. Sturm) under the Incentive Plan. As of March 31, 2000, options
to purchase an aggregate of 3,590,887 shares of Series B Common Stock were
outstanding under the Incentive Plan to all employees as a group, excluding
executive officers.
As of March 31, 2000, 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
March 31, 2000, no SARs covering shares of Series B Common Stock were
outstanding under the Incentive Plan to any employees, including all current
officers who are not executive officers, as a group. All previously granted
SARs were subsequently converted to NQSOs pursuant to the terms of the SAR
grant.
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 Board Of Directors Recommends
A Vote In Favor Of Proposal 4.
16.
<PAGE>
Proposal 5
----------
Ratification of Appointment of Independent Accountants
The Board has selected PricewaterhouseCoopers LLP, independent auditors, to
audit the financial statements of the Company for the year ending December 31,
2000, and recommends that the stockholders vote for ratification of such
appointment. In the event of a negative vote on such ratification, the Board
will reconsider its selection. Representatives of PricewaterhouseCoopers LLP
will be present at the Annual Meeting, will have the opportunity to make a
statement at the Annual Meeting if they choose to do so, and will be available
to respond to appropriate questions.
The Board Of Directors Recommends
A Vote In Favor Of Proposal 5.
17.
<PAGE>
Security Ownership Of
Certain Beneficial Owners And Management
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of our common stock as of
March 31, 2000 for:
. each person known to us to own beneficially more than 5% of the common
stock;
. each of our directors;
. each of the executive officers named in the summary compensation table
below; and
. all of our directors and executive officers as a group.
<TABLE>
<CAPTION>
Series A Series B
Common Stock(1) Common Stock(1) Total Common Stock(1)
-------------------------- ----------------------- --------------------------------------
No. of No. of No. of
Shares Shares Shares % of
Beneficially Percent of Beneficially Percent Beneficially Percent of Voting
Owned Class Owned of Class Owned Class Power (1)
------------ ---------- ------------ --------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Donald L. Sturm(2)..... 5,000,000 98.0% 18,591,682 33.0% 23,591,682 38.3% 63.8%
Texas Pacific
Group(3).............. 0 * 16,634,721 32.5 16,634,721 29.6 16.3
Enron(4)............... 0 * 3,000,000 6.1 3,000,000 5.6 3.0
Sheldon S.
Ohringer(5)........... 0 * 1,870,000 3.9 1,870,000 3.5 1.9
Thomas P
Barrack, Jr.(6)....... 0 * 16,634,721 32.5 16,634,721 29.6 16.3
John G. Donoghue(7).... 0 * 0 * 0 * *
William S.
Price, III(8)......... 0 * 16,634,721 32.5 16,634,721 29.6 16.3
James O.
Spitzenberger(9)...... 0 * 0 * 0 * *
John C.
Stiska(10)............ 0 * 35,000 * 35,000 * *
Melanie L Sturm(11).... 0 * 0 * 0 * *
David J. Gandini(12)... 0 * 134,944 * 134,944 * *
Marion K.
Jenkins(13)........... 0 * 78,050 * 78,050 * *
Jeffrey L.
Dykes(14)............. 0 * 41,450 * 41,450 * *
Douglas L.
Kramer(15)............ 0 * 35,178 * 35,178 * *
All directors and
executive officers
as a group (14)
persons)(16).......... 5,000,000 98.0% 37,498,891 58.6% 42,498,891 61.5% 76.1%
</TABLE>
18.
<PAGE>
- -----------
* Less than one percent beneficially owned
(1) The information above is based on 51,040,072 shares of Series A and Series B
common stock outstanding as of March 31, 2000. In accordance with SEC rules,
the table gives effect to the shares of common stock that could be issued
upon the exercise of outstanding options and warrants prior to May 30, 2000.
Unless otherwise noted in the footnotes to the table and subject to
community property laws where applicable, the individuals have sole voting
and investment control with respect to the shares beneficially owned by
them. Unless otherwise indicated, the business address for each of the
individuals or entities listed below is c/o FirstWorld Communications, Inc.,
8390 East Crescent Parkway, Suite 300, Greenwood Village, Colorado 80111. In
accordance with SEC rules, 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. 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 March 31, 2000 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. The table
above is based upon information supplied by directors, executive officers
and principal stockholders.
(2) Shares listed include: (a) 5,000,000 shares of Series A common stock held
of record by Colorado Spectra 3, LLC; (b) 1,392,757 shares of Series B
common stock held of record by Colorado Spectra 1, LLC; (c) 3,236,083 shares
of Series B common stock held of record by Spectra 3; (d) 3,333,333 shares
of Series B common stock held by record by Colorado 4, LLC; and (e)
10,629,509 shares of Series B common stock subject to currently exercisable
warrants held of record by Spectra 1, Colorado Spectra 2, LLC and Spectra 3.
Spectra 1, 2, 3 and 4 are referred to as the "Sturm Entities." Beneficial
ownership of the foregoing shares is attributable to Mr. Sturm because he is
the managing member of the Sturm Entities and is therefore deemed to
exercise voting power and investment authority with respect to the shares.
The address for the Sturm Entities is 3033 East First Avenue, Suite 200,
Denver, CO 80206.
(3) Shares listed include: (a) 3,539,325 shares of Series B common stock held of
record by TPG Partners III, L.P. ("TPG III"), 1,640,751 shares of Series B
common stock held of record by T3 Partners, L.P. ("T3"), 1,754,154 shares of
Series B common stock held of record by Colony Investors IV, L.P.
("Colony"), and 1,301,853 shares of Series B common stock held of record by
TPG FirstWorld II LLC ("TPG II"); (b) 3,162,555 shares of Series B common
stock held by TPG FirstWorld I LLC, an affiliate of Texas Pacific Group, and
(c) 2,088,973 shares of Series B common stock issuable upon the exercise of
warrants held by TPG II, 968,400 shares of Series B common stock issuable
upon the exercise of warrants held by T3, 1,035,333 shares of Series B
common stock issuable upon the exercise of warrants held by Colony, 375,000
shares of Series B common stock issuable upon exercise of warrants held by
ColonyGP IV, L.P., and 768,377 shares of Series B common stock issuable upon
exercise of warrants held by TPG II. The shares listed above were acquired
in transactions which closed in February and March 2000. By virtue of
affiliations among the above entities they may be deemed to be a group under
Rule 13d-3 under the Securities Exchange Act of 1934, as amended. The
address for the TPG entities listed above is 201 Main Street, Suite 2420,
Fort Worth, TX 76102; the address for the Colony entities listed above is
1999 Avenue of the Stars, Suite 1200, Los Angeles, California 94104.
(4) Shares listed include: 3,000,000 shares of Series B common stock issuable
upon exercise of a warrant held by ECT Merchant Investments Corp. The
address for Enron is 1400 Smith Street, Houston, TX 77002.
(5) Shares listed include: 1,870,000 shares of Series B common stock subject to
currently exercisable options held by Mr. Ohringer at an exercise price of
$6.00.
(6) Shares listed include an aggregate of 16,634,721 shares of Series B Common
Stock held of record by TPG FirstWorld I LLC and a group of investors led by
affiliates of Texas Pacific Group. Mr. Barrack is a director, officer and
stockholder of ColonyGP IV, Inc., which is the general partner of Colony
Capital IV, L.P., which in turn is the sole general partner of Colony
Investors IV, L.P, which is part of a group that includes TPG FirstWorld I
LLC and the various affiliates of Texas Pacific Group. See Note 3 above. Mr.
Barrack disclaims beneficial ownership of such shares except to the extent
of his pecuniary interest therein. The address for Mr. Barrack is 1999
Avenue of the Stars, Suite 1200, Los Angeles, CA 90067.
(7) The address for Mr. Donoghue is 3101 Ellicott Street, N.W., Washington,
D.C. 20008.
(8) Shares listed include an aggregate of 16,634,721 shares of Series B Common
Stock held of record by TPG FirstWorld I LLC and a group of investors led by
affiliates of Texas Pacific Group. See Note 3 above. Mr. Price is the Vice
President of TPG Advisors III, T3 Advisors and certain other entities
affiliated with Texas Pacific Group. T3 Advisors is the general partner of
T3 GenPar, L.P., which in turn is the general partner of T3 Partners, L.P.,
and TPG Advisors III, Inc. is the general partner of TPG GenPar III, L.P.,
which is in turn the general partner of various entities affiliated with
Texas Pacific Group. See Note 3 above. Mr. Price disclaims beneficial
ownership of such shares except to the extent of his pecuniary interest
therein. The address for Mr. Price is 345 California Street, Suite 3300, San
Francisco, CA 94104.
(9) Excludes shares of Series A common stock and Series B common stock
beneficially owned by the Sturm Entities (described in note 2). Mr.
Spitzenberger, together with trusts established for the benefit of Mr.
Spitzenberger's children, owns 10.0%, 10.0%, 6.67% and 7.28% of the
membership interests in Spectra 1, Spectra 2, Spectra 3 and Spectra 4,
respectively. Mr. Spitzenberger disclaims beneficial ownership of such
shares except to the extent of his pecuniary interest therein. The address
for Mr. Spitzenberger is 3033 East First Avenue, Suite 200, Denver,
CO 80206.
19.
<PAGE>
(10) Shares listed include: (a) 10,000 shares of Series B common stock held
directly by Mr. Stiska; and (b) 25,000 shares of Series B common stock
subject to currently exercisable options held by Mr. Stiska at an exercise
price of $3.00. The address for Mr. Stiska is Commercial Bridge Capital,
LLC, 4275 Executive Square, Suite 350, La Jolla, CA 92037.
(11) Excludes shares of Series A common stock and Series B common stock
beneficially owned by the Sturm Entities (described in note 2). Ms. Sturm
owns membership interests in certain of the Sturm Entities, through a
revocable trust of which she is a co-trustee. Ms. Sturm disclaims
beneficial ownership of such shares. The address for Ms. Sturm is 5430
Chevy Chase Parkway, NW, Washington, DC 20015.
(12) Shares listed include: 125,000 shares of Series B common stock subject to
currently exercisable options held by Mr. Gandini at an exercise price of
$6.00, 7,444 shares acquired pursuant to FirstWorld's Quarterly Bonus
Program and 2,500 shares of Series B common stock purchased in the open
market on March 8, 2000.
(13) Shares listed include: 62,500 shares of Series B common stock subject to
currently exercisable options held by Mr. Jenkins at an exercise price of
$6.00, 7,550 shares acquired pursuant to FirstWorld's Quarterly Bonus
Program, 5,000 shares held jointly with his wife purchased in open market
transactions on March 8, 2000 and an aggregate of 3,000 shares which were
acquired in open market transactions on March 8, 2000 and held as
custodian for his children.
(14) Shares listed include: 37,500 shares of Series B common stock subject to
currently exercisable options held by Mr. Dykes at an exercise price of
$6.00 and 3,950 shares acquired by Mr. Dykes pursuant to FirstWorld's
Quarterly Bonus Program.
(15) Shares listed include: 31,250 shares of Series B common stock subject to
currently exercisable options held by Mr. Kramer at an exercise price of
$6.00 and 3,928 shares acquired pursuant to FirstWorld's Quarterly Bonus
Program.
(16) Of the 37,498,891 shares of Series B common stock beneficially owned by the
directors and executive officers as a group, 29,488 shares of Series B
common stock were acquired by certain executive officers pursuant to
FirstWorld's Quarterly Bonus Program.
Executive Officers
The following sets forth certain information with respect to the executive
officers of the Company as of March 31, 2000:
<TABLE>
<CAPTION>
Name Age Position
---- ----- --------
<S> <C> <C>
Donald L. Sturm ................. 68 Chairman of the Board
Sheldon S. Ohringer.............. 42 President, Chief Executive Officer and Director
David J. Gandini................. 42 Executive Vice President
Marion K. Jenkins................ 46 Executive Vice President of Web Technologies and Chief Technology
Officer
Jeffrey L. Dykes................. 45 Senior Vice President, General Counsel and Secretary
Scott M. Chase................... 31 Senior Vice President, Corporate and Government Affairs and Assistant
Secretary
Paul C. Adams.................... 37 Vice President of Finance, Treasurer and Assistant Secretary
</TABLE>
Donald L. Sturm. Mr. Sturm has been Chairman of our board of directors and
head of the Chairman's Committee since January 1998. Mr. Sturm served as
President from January 1998 through September 1998 and as Chief Executive
Officer from March 1998 through September 1998. Since December 1991, Mr. Sturm
has been a private equity investor, with interests in telecommunications,
banking and real estate, 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 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., a construction,
coal mining and telecommunications company that has made significant investments
in other industries. In 1984, Mr. Sturm led Peter Kiewit Sons' $3.5 billion
acquisition of The Continental Group Inc. and became the Continental Group's
Chairman and Chief Executive Officer, positions he held until Peter Kiewit Sons'
sold the Continental Group in 1991. While Vice Chairman of Peter Kiewit Sons',
Mr. Sturm participated in decisions to invest in MFS Communications which was
taken public in 1993 and sold to MCI WorldCom, Inc. in 1996 for approximately
$14.4 billion. Mr. Sturm owns significant ownership interests in MCI WorldCom,
Level 3 Communications, Inc., HarvardNet and KAPT, a telecommunications company
based in Paris, France.
Sheldon S. Ohringer. Mr. Ohringer has been Chief Executive Officer,
President, a director of FirstWorld and a member of the Chairman's Committee
since October 1, 1998 and a member of the Equity Investment Committee
20.
<PAGE>
since November 1999. Beginning in November 1994, Mr. Ohringer served in various
capacities for ICG Communications, Inc., most recently as Executive Vice
President--Telecom of ICG Communications and President of ICG Telecom Group,
Inc., an operating subsidiary of ICG Communications. Before working for ICG, Mr.
Ohringer was Senior Vice President of Sales and Business Development for U.S.
Long Distance Corp. from May 1991 until October 1994. From May 1984 until August
1990, Mr. Ohringer held key management and executive positions with Telecom*
USA, a long distance carrier which was acquired by MCI WorldCom in 1990. In
1999, Mr. Ohringer was appointed Commissioner to the Colorado Commission on
Science and Technology. As Commissioner, Mr. Ohringer advises the Governor of
Colorado on Internet and telecommunications issues. Mr. Ohringer in an executive
member of the board of directors for the Association for Local
Telecommunications Services (ALTS), the leading local competitive
telecommunications association in the United States of America. Mr. Ohringer
received a B.A. degree in Business Administration from the University of Iowa in
December 1979.
David J. Gandini. Mr. Gandini has been Executive Vice President of FirstWorld
since November 1998. Mr. Gandini is responsible 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 and
President of Long Distance Operations. During this period, Mr. Gandini directed
the construction of a 166-node network, one of the largest voice/data/Internet
Protocol domestic networks. Before joining ICG Telecom, Mr. Gandini was the
President of Pace Network Services. Mr. Gandini received a B.A. degree in
telecommunications from Michigan State University.
Marion K. Jenkins, Ph.D. Dr. Jenkins has been Executive Vice President of Web
Technologies and Chief Technology Officer since January 2000. Previously, Dr.
Jenkins had been Senior Vice President of Information Technology and Chief
Information Officer of FirstWorld since November 1998. For the previous two
years, Dr. Jenkins held various executive offices, most recently as Vice
President of Strategic Client Applications at Qwest Communications
International, Inc., Vice President of Sales Operations at LCI International and
Chief Information Officer at U.S. Long Distance Corp. Dr. Jenkins worked in
these various positions as a result of the acquisition of LCI by Qwest and the
acquisition of USLD by LCI. Dr. Jenkins also served as Vice President of Sales
for American Telco, Inc. from 1986 through 1996. Dr. Jenkins holds M.S. and
Ph.D. degrees in mechanical engineering from Stanford University, and a B.S.
degree, with honors, in mechanical engineering from Utah State University.
Jeffrey L. Dykes. Mr. Dykes has been Senior Vice President and General
Counsel of FirstWorld since January 1999 and is responsible for all of our legal
affairs. In March 1999, Mr. Dykes was appointed Secretary of FirstWorld. From
February 1996 through January 1999, Mr. Dykes served in various capacities in
the legal department at ICG Communications, most recently as Assistant General
Counsel. From 1991 through 1995, Mr. Dykes served in various positions at the
Denver and Regional Offices 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 law degree from the University of Denver College
of Law in 1981 and graduated cum laude from Western State College of Colorado
with a B.A. degree in English.
Scott M. Chase. Mr. Chase has been our Senior Vice President of Corporate and
Government Affairs of FirstWorld since October 1998. In March 1999, Mr. Chase
was appointed Assistant Secretary of FirstWorld. Mr. Chase worked in various
capacities for ICG Communications from March 1997 to September 1998, most
recently as Vice President, Corporate Communications and Government Affairs.
After graduating from the University of Colorado in 1991 and until he joined ICG
Communications in March 1997, Mr. Chase served in various government capacities
and 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. 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 of
FirstWorld since January 1999. In March 1999, Mr. Adams was appointed Assistant
Secretary of FirstWorld. 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 is the principal financial and accounting officer of
FirstWorld. He received a B.S. degree in Business from the University
21.
<PAGE>
of Colorado in 1987 and a B.A. degree in Economics from the University of
Alberta in 1985. He is a Certified Public Accountant.
Executive Compensation
The following table sets forth all compensation awarded to, earned by or paid
to our Chief Executive Officer and our four other most highly compensated
executive officers whose annual salary and bonus exceeded $100,000 for services
rendered in all capacities to us during 1999 (collectively, the "Named Executive
Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation (1) Compensation
------------------------------------------------- ---------------
Twelve Other Annual Securities
Months Compensation Underlying
Name and Principal Position(s) Ended Salary ($) Bonus ($) ($) Options (#)
- ---------------------------------------------- ------------ ------------ ----------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Sheldon S. Ohringer (2)......................... 12/31/1999 202,518 100,000(3) 1,000,000(4)
President and Chief Executive Officer......... 12/31/1998 50,006 -- 2,000,000 2,805,000
David J. Gandini (5)............................ 12/31/1999 185,000 27,273(6) 100,000(7) 10,000
Executive Vice President...................... 12/31/1998 15,417 -- -- 500,000
Marion K. Jenkins (8)........................... 12/31/1999 160,000 26,051(6) -- 40,000
Executive Vice President of Web............... 12/31/1998 23,077 250,000
Technologies and Chief Technology
Officer
Jeffrey L. Dykes (9)............................ 12/31/1999 159,487 20,201(6) 30,000 160,000
Senior Vice President, General................ 12/31/1998 -- -- -- --
Counsel and Secretary
Douglas L. Kramer (10).......................... 12/31/1999 135,000 16,823(6) 30,000 10,000
Senior Vice President......................... 12/31/1998 9,259 -- -- 125,000
</TABLE>
- -----------
(1) Other compensation in the form of perquisites and other personal benefits
has been omitted in those cases where the aggregate amount of such
perquisites and other personal benefits constituted less than the lesser of
$50,000 or 10% of total annual salary and bonus for the Named Executive
Officers for such year.
(2) Mr. Ohringer became FirstWorld's Chief Executive Officer on October 1, 1998.
(3) Pursuant to the terms of Mr. Ohringer's employment agreement, Mr. Ohringer
is entitled to receive a bonus up to 50% of his base pay on each of his
employment anniversary dates. As a result, Mr. Ohringer was paid a bonus on
October 1, 1999.
(4) Pursuant to the terms of Mr. Ohringer's employment agreement Mr. Ohringer is
entitled to a cash payment of $4.0 million for certain benefits that he
would have been eligible to receive from his former employer. The cash
payment of $4.0 million is payable in three separate installments, the first
installment in the amount of $2.0 million was paid to Mr. Ohringer on
October 1, 1998 and the second installment of $1.0 million was paid to Mr.
Ohringer on October 1, 1999.
(5) Mr. Gandini became a FirstWorld employee on December 1, 1998.
(6) Payment represents cash bonus pursuant to the Company's Quarterly Bonus
Program.
(7) Pursuant to the terms of Mr. Gandini's employment agreement, Mr. Gandini is
entitled to a cash payment of $500,000 for certain benefits he would have
been eligible to receive from his former employer. The $500,000 cash
payment is payable in three installments on each of January 1, 1999, 2000
and 2001. The first installment of $100,000 was paid on January 1, 1999 and
the second installment of $200,000 was paid on January 1, 2000.
(8) Dr. Jenkins became a FirstWorld employee on November 9, 1998.
(9) Mr. Dykes became a FirstWorld employee on January 4, 1999.
(10) Mr. Kramer became a FirstWorld employee on December 7, 1998.
22.
<PAGE>
Option Grants During 1999
The following table sets forth certain information with respect to options to
purchase Series B common stock granted during the twelve-month period ended
December 31, 1999 to certain of our executive officers.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
% of Total Annual Rates of
Number of Options Stock Price
Securities Granted Exercise Appreciation
Underlying to Employees Price for Option Term
Options Granted in Fiscal Year per Share Expiration --------------------
Name (#) (%) ($/SH) Date 5% 10%
---- --------------- -------------- ------------ ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
Sheldon S. Ohringer............ -- -- -- -- -- --
David S. Gandini............... 10,000 * 7.50 12/31/06 30,533 71,154
Marion K. Jenkins.............. 40,000 1.0 7.50 12/31/06 122,130 284,615
Jeffrey L. Dykes............... 37,500 6.00 01/04/06 91,598 213,461
37,500 6.50 01/04/06 72,848 194,711
37,500 7.00 01/04/06 54,098 175,961
37,500 7.50 01/04/06 35,348 157,211
10,000 7.50 12/31/06 30,533 71,154
------- ------- -------
160,000 3.8 284,425 812,498
Douglas L. Kramer.............. 30,000 * 7.50 12/31/06 30,533 71,154
</TABLE>
- -----------
* Less than 1%
Options were granted at an exercise price equal to or greater than the fair
market value of our Series B common stock. Exercise prices are determined by
our Board on the date of grant.
The 5% and 10% assumed annual rates of compounded stock price appreciation
shown above are mandated by rules of the SEC. These values do not take into
account amounts required to be paid as income taxes and any applicable state
laws or option provisions providing for termination of an option following
termination of employment, non-transferability or vesting, and do not reflect
our estimate of future stock price growth, if any, of the shares of Series B
common stock.
23.
<PAGE>
Options Exercised During 1999 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, 1999, and the unexercised options held and the value
thereof at that date, for each of the named executive officers.
<TABLE>
<CAPTION>
Shares Number of Securities
Acquired Value Underlying Unexercised Value of Unexercised In-
on Exercise Realized Options at Fiscal Year the-Money Options at Fiscal
(#) ($) End(#) Year End($)
----------- ------------ -------------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------- ----------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Sheldon S. Ohringer....................... -- -- 1,870,000 935,000 2,805,000 1,402,500
David J. Gandini.......................... -- -- 125,000 385,000 187,500 187,500
Marion K. Jenkins......................... -- -- 62,500 227,500 93,750 93,750
Jeffrey L. Dykes.......................... -- -- -- 160,000 -- 112,500
Douglas L. Kramer......................... -- -- 31,250 103,750 46,875 46,875
</TABLE>
In the table above, the value of unexercised in-the-money options is based on
the fair market value of our Series B common stock as of December 31, 1999
(determined by the Board to be $7.50 per share), minus the per share exercise
price, multiplied by the number of shares underlying the option.
Employment Agreements
We have employment agreements with Sheldon S. Ohringer, David J. Gandini,
Jeffrey L. Dykes, Marion K. Jenkins, Douglas L. Kramer, Scott M. Chase and Paul
C. Adams, among others.
Sheldon S. Ohringer
We entered into an employment agreement on September 28, 1998, with Sheldon S.
Ohringer pursuant to which Mr. Ohringer agreed to join FirstWorld as our
President and Chief Executive Officer on October 1, 1998. This employment
agreement has a three year term ending on September 30, 2001 and thereafter will
automatically renew for one year periods, unless terminated earlier by either
party. It also provides that Mr. Ohringer will be nominated to serve as a
director of FirstWorld during the term of the agreement. The agreement provides
for an initial annual base salary of $200,000 which will be reviewed annually
beginning October 1999, and an annual cash bonus of not more than 50% of Mr.
Ohringer's base salary. Also, to compensate Mr. Ohringer for certain benefits
that he would have received from his previous employer, we have agreed to pay
Mr. Ohringer a cash payment of $4.0 million in three separate installments. The
first installment in the amount of $2.0 million was paid on October 1, 1998, the
second $1.0 million installment was paid on October 1, 1999 and the final $1.0
million installment is due on October 1, 2000. Under his employment agreement,
Mr. Ohringer must be employed by FirstWorld on the date an installment becomes
due to be eligible to receive the installment payment unless FirstWorld
terminates Mr. Ohringer's employment other than for cause or Mr. Ohringer
terminates his own employment for good reason prior to the installment date. In
addition, Mr. Ohringer may elect to receive all or any portion of the third
installment payment in the form of Series B common stock in lieu of a cash
payment, in which case the stock will be valued at $7.50 per share,
respectively. In the event that the stock payment election is made, we may be
required to record a non-cash compensation charge associated with this payment
in the fourth quarter of 2000.
In addition, under his employment agreement, Mr. Ohringer will be eligible for
the following bonuses:
Initial Public Offering Bonus. Upon the closing an initial public offering
with gross proceeds to FirstWorld of at least $20.0 million, referred to below
as a "qualified public offering," with a price of at least $10.00 per share
before April 1, 2000, we agreed to pay Mr. Ohringer a single sum of $1.0 million
as a cash bonus. Mr. Ohringer received this payment in March 2000.
24.
<PAGE>
Deferred Cash Bonus. In addition to the initial public offering bonus
discussed above, Mr. Ohringer's employment agreement calls for the following
payments:
. In the event a qualified public offering with a price of at least $12.50 per
share before October 1, 2000, we agreed to pay Mr. Ohringer an $8.4 million
cash bonus on September 30, 2001. Mr. Ohringer is entitled to this bonus
payment based on our initial public offering on March 8, 2000.
. In addition, if FirstWorld's Series B common stock trades in excess of
$20.00 for a period of 20 consecutive trading days prior to October 1, 2001,
then on September 30, 2001 we will pay Mr. Ohringer a cash payment equal to
$16.8 million minus any amounts he receives under either of the two bulleted
paragraphs above.
The payments described in the two paragraphs above are referred to as the
"deferred cash bonus." Upon a change of control or the termination of Mr.
Ohringer's employment by FirstWorld without cause, voluntarily by Mr. Ohringer
for good reason or upon his death, 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. In no event will the termination of Mr. Ohringer's employment,
including termination by FirstWorld for cause or disability 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 that
termination.
Mr. Ohringer also has been granted an option to purchase 2,805,000 shares of
Series B common stock at an exercise price of $6.00 per share, subject to anti-
dilution protections set forth in his employment agreement. The option has a
term of seven years from October 1, 1998 and vested with respect to one-third of
the shares on October 1, 1998 and 1999, and will vest with respect to the
remaining one-third on October 1, 2000. In addition, all of the shares subject
to the option shall immediately vest immediately prior to the effectiveness of a
change of control, if FirstWorld's Series B common stock trades at a price in
excess of $20.00 for a period of 20 consecutive trading days prior to October 1,
2001, or if Mr. Ohringer is terminated by FirstWorld without cause or Mr.
Ohringer voluntarily terminates his employment with FirstWorld 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; provided, however, that this provision will not apply if there is a
change in control, merger, consolidation or other transaction where FirstWorld
is not the surviving entity and where all of FirstWorld's shareholders receive
cash or other consideration for their shares as a result of the transaction.
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, with respect to certain future equity issuances.
This right of first refusal terminated upon the closing of our initial public
offering. Mr. Ohringer may also participate in the employee benefit plans
generally available to other executive officers of FirstWorld including pension,
retirement, hospitalization, insurance, disability or medical services.
Depending on how Mr. Ohringer's employment with FirstWorld terminates, Mr.
Ohringer or his estate may be eligible to receive certain termination payments
and Mr. Ohringer or his family and dependents would also be entitled to
continuation of certain benefits for a specified period of time. In addition,
if Mr. Ohringer's employment is terminated by FirstWorld without cause or by Mr.
Ohringer for good reason, which includes a change of control of FirstWorld,
FirstWorld will pay Mr. Ohringer a severance payment equal to two times his
annual base salary and bonus plus certain accrued vacation, all options awarded
to him will fully vest and the non-compete covenant discussed below will not
apply. Mr. Ohringer can also elect, in his sole discretion, to reduce any
severance benefits and payments made to him on such a termination of employment,
to the extent that such payments would cause Mr. Ohringer's total termination
benefits to constitute an excess parachute payment under Section 280G of the
Code and by reason of such excess parachute payment, Mr. Ohringer would be
subject to an excise tax under Section 4999(a) of the Code.
Mr. Ohringer is subject to a one year non-compete covenant if his employment
is terminated by FirstWorld for cause or for disability or if Mr. Ohringer
voluntarily terminates his employment without good reason.
25.
<PAGE>
Other Employment Agreements
On November 9, 1998, we entered into a two-year employment agreement with
Dr. Marion K. Jenkins, our Executive Vice President of Web Technologies and
Chief Technology Officer. This agreement currently provides for a current base
salary of $170,000 and a discretionary bonus of up to 50% of the base salary.
Mr. Jenkins was granted an option to purchase 250,000 shares of Series B common
stock, vesting as to one quarter of the shares on each of the first, second,
third and fourth anniversaries of the agreement. The exercise price of the
option is $6.00 per share with respect to the first installment, $6.50 for the
second installment, $7.00 for the third installment and $7.50 for the fourth
installment.
On November 30, 1998, we entered into a three-year employment agreement
with David Gandini, our Executive Vice President Sales. This agreement currently
provides for a base salary of $196,280 and a discretionary bonus of up to 40% of
the base salary. In addition, Mr. Gandini received a signing bonus of $500,000,
payable in three annual installments beginning on January 1, 1999. Mr. Gandini
was granted an option to purchase 500,000 shares of Series B common stock,
vesting as to one quarter of the shares on each of the first, second, third and
fourth anniversaries of the agreement. The exercise price of the option is $6.00
per share with respect to the first installment, $6.50 for the second
installment, $7.00 for the third installment and $7.50 for the fourth
installment. Mr. Gandini's options vest immediately upon a change of control of
the company.
On December 7, 1998, we entered into a two-year employment agreement with
Douglas L. Kramer, who was hired as our Senior Vice President and Chief
Technical Officer and is currently our Senior Vice President of Engineering and
Operations. The agreement currently provides for a base salary of $141,750 and a
discretionary bonus of up to 35% of the base salary. Mr. Kramer was paid a one-
time signing bonus of $30,000 and was granted options to purchase 100,000 shares
of Series B common stock, vesting as to one quarter of the shares on each of the
first, second, third and fourth anniversaries of the agreement. The exercise
price of the option is $6.00 per share with respect to the first installment,
$6.50 for the second installment, $7.00 for the third installment and $7.50 for
the fourth installment. Mr. Kramer's options vest immediately upon a change of
control of the company.
On January 4, 1999, we entered into a two-year employment agreement with
Jeffrey L. Dykes, our General Counsel and Secretary. This agreement currently
provides for an initial base salary of $168,000 and a discretionary bonus of up
to 35% of the base salary. In addition, Mr. Dykes received a signing bonus of
$30,000. Mr. Dykes was granted an option to purchase 150,000 shares of Series B
common stock, vesting as to one quarter of the shares on each of the first,
second, third and fourth anniversaries of the agreement. The exercise price of
the option is $6.00 per share with respect to the first installment, $6.50 for
the second installment, $7.00 for the third installment and $7.50 for the fourth
installment. Mr. Dykes' options vest immediately upon a change of control of
the company or upon termination by us without cause or by Mr. Dykes for good
reason.
On January 27, 1999, we entered into a one-year employment agreement with
Paul C. Adams, our Vice President of Finance, Treasurer and Assistant Secretary.
We renewed this agreement on January 27, 2000. This agreement currently provides
for a base salary of $132,000 and a discretionary bonus of up to 25% of the base
salary. Mr. Adams was granted an option to purchase 100,000 shares of Series B
common stock, vesting as to one quarter of the shares on each of the first,
second, third and fourth anniversary of the agreement. The exercise price of the
option is $6.00 per share with respect to the first installment, $6.50 for the
second installment, $7.00 for the third installment and $7.50 for the fourth
installment. Mr. Adams' options vest immediately upon a change of control of the
company.
Report of the Compensation Committee
Executive Compensation
General
The purpose of the compensation policy of FirstWorld Communications, Inc.,
a Delaware corporation is to attract, retain and motivate FirstWorld's executive
officers ("Executive Officers") over the long term. Since 1997, executive
compensation has been reviewed by the compensation committee of the board of
directors of FirstWorld (the "Compensation Committee"). The primary components
of FirstWorld's executive compensation program are base salary and bonuses and
long-term incentive compensation in the form of stock options offered under
FirstWorld's incentive plans.
Base Salaries and Bonuses
Annual base salaries paid to Executive Officers have historically been at
levels consistent with those paid to executive officers with comparable
experience and responsibilities in the telecommunications industry or other
26.
<PAGE>
similarly sized companies. Although Executive Officers and FirstWorld are
parties to employment agreements, which set a base level of salary, the
Compensation Committee reviews all adjustments to annual base salaries paid to
Executive Officers. Compensation adjustments are determined based on
recommendations from FirstWorld's President and Chief Executive Officer.
Factors considered by Mr. Ohringer in making his recommendation to the
Compensation Committee are typically based on his perception on the individual's
performance, success in achieving company and personal goals, and planned
changes in responsibilities. An individual's extraordinary efforts resulting in
tangible increases in corporate, division or department success are also
considered by Mr. Ohringer in recommending increases in base salary and annual
bonuses.
Incentive Compensation
Stock option grants under FirstWorld's incentive plans are designed to
provide an additional incentive to attract and retain executive officers. In
addition, stock options provide an incentive to Executive Officers to increase
shareholder value on a long-term and sustained basis. Management believes that
Executive Officers, who are in a position to contribute to the long-term success
of FirstWorld and to build incremental shareholder value, should have a stake in
FirstWorld's future success. This focuses attention on managing FirstWorld as
an owner with an equity position in FirstWorld's business and seeks to align the
Executive Officers' interests with the long-term interests of FirstWorld's
stockholders. Stock options represent an important part of FirstWorld's
compensation program for Executive Officers, and, similar to other growing
technology companies, represents a significant component of overall
compensation.
Compensation of Chief Executive Officer
As set forth in a three-year employment agreement entered into by Mr. Ohringer
and FirstWorld, Mr. Ohringer's base salary was established on September 28,
1998, at $200,000 per year, effective October 1, 1998, the day he became
FirstWorld's Chief Executive Officer. Mr. Ohringer's base salary is subject to
annual reviews commencing October 1999 and each year thereafter. Mr. Ohringer's
base salary was increased during fiscal 1999 from $200,000 to $210,000, and
consequently his total base compensation for the year was $202,518.
The Compensation Committee reviews Mr. Ohringer's performance at least once
annually during each year of the employment period and, based on Mr. Ohringer's
performance recommend whether FirstWorld should award Mr. Ohringer a cash bonus
in an amount not exceeding 50% of his base salary in order to reward him for
services rendered to FirstWorld and/or as an incentive for continued service to
FirstWorld. The amount of Mr. Ohringer's bonus is determined in the reasonable
discretion of the Compensation Committee and is dependent upon, among other
things, the achievement of certain performance levels by FirstWorld, including,
without limitation, (i) the nature, magnitude and quality of the services
performed by Mr. Ohringer for FirstWorld, (ii) the condition (financial and
other) and results of operations of FirstWorld and (iii) the compensation paid
for positions of comparable responsibility and authority within the
telecommunications industry. Mr. Ohringer's bonus for fiscal 1999 was $100,000.
Pursuant to the terms of Mr. Ohringer's employment agreement, Mr. Ohringer
is entitled to a cash payment of $4.0 million for certain benefits that he would
have been eligible to receive from his former employer. The cash payment of
$4.0 million is payable in three separate installments, the first installment in
the amount of $2.0 million was paid to Mr. Ohringer on October 1, 1998 and the
second installment of $1.0 million was paid to Mr. Ohringer on October 1, 1999.
In addition, Mr. Ohringer received options to purchase up to 2,805,000 shares of
the Company's Series B Common Stock at a price of $6.00 per share. This grant
of options vests in three equal installments on October 1, 1998, 1999 and 2000.
Mr. Ohringer did not receive additional options in 1999.
The report of the Compensation Committee shall not be deemed incorporated
by reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933, as amended, or under
the Securities Exchange Act of 1934, as amended, except to the extent that
FirstWorld specifically incorporated this information by reference, and shall
not otherwise be deemed filed under such Acts.
Respectfully submitted,
The FirstWorld Compensation Committee
Melanie L. Sturm
William S. Price, III
27.
<PAGE>
Performance Measurement Comparison
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, 1999, with (i) a
peer group consisting of At Home Corporation, Concentric Network Corporation,
Exodus Communications, Globix Corporation, PSINet Inc., Sapient Corporation and
Verio, Inc., (ii) the Nasdaq Stock Market (US) Index and (iii) the Nasdaq
Telecommunications Index. 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, the Nasdaq Telecommunications 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, during the period represented by
this graph there was no public market for the Company's Series B Common Stock.
Thus, 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 during this period. There can be no assurance
that shares of Series B Common Stock could have been traded at the fair market
value determined by the Company's Board of Directors if a public market had
existed for the Series B Common Stock.
Cumulative Total Return
-------------------------------
10/8/98 12/98 12/99
FIRSTWORLD COMMUNICATIONS, INC. 100.00 100.00 125.00
PEER GROUP 100.00 207.26 620.02
NASDAQ STOCK MARKET (U.S.) 100.00 155.40 287.58
NASDAQ TELECOMMUNICATIONS 100.00 164.01 290.20
28.
<PAGE>
Certain Transactions
December 1997 Equity Investment
General. On December 30, 1997, we issued 5,000,000 shares of newly created
Series A common stock to each of Spectra 3 and Enron Capital & Trade Resources
Corp., an affiliate of Enron Corp., for $3.00 per share pursuant to a common
stock purchase agreement. We also issued for no additional consideration
warrants to purchase 5,000,000 shares of Series B common stock at $3.00 per
share to each of Spectra 3 and Enron. The Series A common stock and Series B
common stock are identical in all respects, except that the Series A common
stock possesses ten votes per share on all matters subject to a vote of
stockholders while the Series B common stock possesses one vote per share.
Spectra 3, an entity controlled by Donald L. Sturm, was formed for the purpose
of participating in this equity investment. Spectra 3 is an affiliate of
Spectra 1 and Spectra 2, entities that owned equity securities of FirstWorld
prior to the equity investment. Spectra 1, 2, 3 and 4 are referred to as the
"Sturm Entities."
The stock purchase agreement also granted Spectra 3 and Enron the right to
invest an additional $20.0 million in the aggregate on the same terms 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. Spectra 3 and
Enron exercised this option in April 1998 and acquired an aggregate of shares of
Series B common stock at an exercise price of $3.00 per share.
Investor Rights Agreement. In connection with the closing of the equity
investment discussed above, we entered into an amended and restated investor
rights agreement which entitles Spectra 3, Enron and other prior investors to
certain demand and piggyback registration rights. In addition, the Sturm
Entities and Enron were granted rights of first refusal that permit them to
maintain their respective percentage ownership interest in FirstWorld with
respect to certain future equity issuances. Under the terms of his employment
agreement, Mr. Ohringer was also granted a right to maintain his percentage
ownership interest in FirstWorld with respect to certain future equity
issuances.
In connection with the additional investment of $20.0 million discussed
above, we further amended and restated the investor rights agreement in order to
allow for, and coordinate with, the registration rights granted by the warrant
registration rights agreement dated April 13, 1998 between FirstWorld and the
initial purchasers of those warrants and to make certain other revisions to the
previous version of the investor rights agreement. Also, in connection with the
hiring of Mr. Ohringer as our President and Chief Executive Officer in October
1998, we amended the investor rights agreement to waive the right of first
refusal with respect to the issuance of options pursuant to Mr. Ohringer's
employment agreement.
In connection with the Sturm equity investment agreement, the investor
rights agreement was amended to waive the right of first refusal held by certain
parties with respect to the acquisition of the Series B common stock by Spectra
4 under that agreement, to provide Spectra 4 the same rights and obligations as
the "Sturm Entities" under the investor rights agreement, and to provide the
same registration rights to Spectra 4 as are provided to other holders under the
agreement. Upon consummation of the private placements of common stock to
Lucent, Microsoft, SAIC and Texas Pacific Group which closed concurrently with
our initial public offering, the investor rights agreement was amended to
provide these parties with the demand, S-3 and piggy back registration rights
set forth in the investor rights agreement. In addition, pursuant to a letter
agreement signed by Enron, Texas Pacific Group and FirstWorld, all of Enron's
rights under this agreement terminated upon the closing of the Company's initial
public offering of common stock on March 13, 2000.
Amendment to Sturm Warrant. On January 31, 1997 FirstWorld, Spectra 1 and
Spectra 2 entered into a warrant purchase/right to maintain agreement pursuant
to which we sold to Spectra 2 a warrant that was initially exercisable for
800,000 shares of common stock at an aggregate exercise price of $3.8 million.
This warrant contained an anti-dilution provision pursuant to which the number
of shares that could be purchased could be increased based upon the weighted
average issuance price of equity securities issued by FirstWorld prior to April
1, 1999. In connection with the closing of the December 1997 equity investment,
this warrant was amended to provide for the issuance upon exercise of up to
2,110,140 shares of Series B common stock with an exercise price of $1.80 per
share, amounting to an aggregate exercise price of approximately $3.8 million.
The warrant is subject to customary adjustment on stock splits, stock dividends,
subdivisions or combinations, but is not otherwise subject to adjustment. In
addition, Spectra 1 and Spectra 2 waived their maintenance rights provided under
the warrant purchase/right to maintain agreement.
29.
<PAGE>
Waiver of Business Opportunities. In connection with the 1997 equity
investment FirstWorld, the Sturm Entities and Enron entered into a business
opportunity agreement to address the fact that Enron and the Sturm Entities or
their affiliates own or participate in telecommunications businesses, and may
develop, finance or otherwise participate in such businesses in the future,
including businesses that may compete with FirstWorld. Enron advised FirstWorld
and the Sturm Entities that (a) FirstPoint Communications, Inc. and its
affiliates, which are affiliates of Enron, are engaged in the business of
providing telecommunications services, and may have developed or will develop,
finance or acquire interests in telecommunications and related companies that
compete with FirstWorld, and (b) FirstPoint was at the time of the investment by
Enron in FirstWorld pursuing a financing, acquisition or investment opportunity
in a competitor or potential competitor of FirstWorld.
This business opportunity agreement generally provides, except as agreed by
the parties and as set forth in that agreement, that (a) neither Enron, the
Sturm Entities nor any of their affiliates would have any obligation to pursue
any business opportunity jointly with FirstWorld or to offer any business
opportunity to FirstWorld, and any Enron or Sturm Entity representative on the
board would have no obligation to offer any business opportunity to FirstWorld;
(b) Enron, the Sturm Entities and their affiliates would be free to pursue
business opportunities jointly with parties other than FirstWorld, including
opportunities that might involve telecommunications; and (c) Enron, the Sturm
Entities and their affiliates would be free to compete with FirstWorld and would
have no obligation to refrain from engaging in any business.
The business opportunity agreement also provides that we will, during an
exclusivity period, grant Enron and its affiliates the exclusive right to pursue
jointly with us any "joint application opportunity" that includes both
telecommunications and utility applications, for example, the marketing of
natural gas, electricity or water and the provision of related services. The
exclusivity period began on the closing of the December 1997 equity investment
and continues until the earlier of December 30, 2000 or the date upon which
Enron and any of its affiliates hold less than 5% of the capital stock or
warrants of FirstWorld (determined on a fully-diluted basis). During this
exclusivity period, we are obligated to provide Enron notice of any joint
application opportunity that we want to pursue anywhere in the United States.
If Enron notifies us that it desires to participate, then we cannot pursue the
joint application opportunity without the participation of Enron. If Enron
elects not to participate, then we are free to pursue independently the
telecommunications portion of the joint application opportunity without the
participation of Enron, but we cannot pursue the joint application opportunity
with any other person (except for provision of the telecommunications portion
thereof on a subcontract basis only), and Enron is free to pursue the joint
application opportunity (including the utility applications and/or the
telecommunications applications) on its own or with any party other than
FirstWorld. This agreement was terminated with respect to Enron in connection
with the closing of Enron's sale of its Series A and Series B common stock to
Texas Pacific Group.
Securityholders Agreement. The Sturm Entities and Enron entered into a
securityholders agreement, to which FirstWorld is also a party, in connection
with the closing of the December 1997 equity investment. This contains
agreements among the Sturm Entities and Enron with respect to the designation,
election, removal and replacement of the members of the board other than those
elected by the holders of our Series B common stock. It also contains
agreements among the Sturm Entities and Enron (a) providing for rights of first
offer with respect to certain proposed transfers of common stock or warrants of
FirstWorld by any of the Sturm Entities or Enron, (b) providing for rights to
purchase the common stock and warrants held by a party to the securityholders
agreement, other than FirstWorld, that experiences a change of control or other
triggering event and (c) providing for rights to participate in certain proposed
dispositions of common stock or warrants by any of the Sturm Entities or Enron.
In connection with the Sturm equity investment agreement, the Securityholders
Agreement was amended to add Spectra 4 as a Holder and a member of the Sturm
Group as those terms are defined under that agreement. This agreement was
terminated in connection with Enron's sale of its Series A and Series B common
stock to Texas Pacific Group.
Transaction Fees and Expenses. We paid Spectra 3 and Enron a transaction
fee equal to six percent of the gross amount invested by them in the December
1997 equity investment and the additional $20 million in April 1998--$1.5
million for each of Spectra 3 and Enron. In addition, FirstWorld reimbursed all
reasonable costs and expenses of the Sturm Entities and Enron incurred in
connection with the stock purchase agreement, up to a maximum of $50,000 for the
Sturm Entities and $50,000 for Enron, plus the $90,000 of required filing fees
under the Hart-Scott-Rodino Act.
Management Services Agreements. FirstWorld entered into separate management
consulting services agreements with each of Enron and Corporate Managers, LLC, a
Colorado limited liability company which is an
30.
<PAGE>
affiliate of the Sturm Entities. Pursuant to this agreement, Enron and Corporate
Managers will provide management services to FirstWorld for three years
following the closing of the 1997 equity investment in exchange for an annual
management fee. Both management consulting 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 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 FirstWorld than originally anticipated. On October 1, 1998, FirstWorld
further amended that management consulting services agreement to reduce the
compensation payable to Corporate Managers 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 FirstWorld's new Chief
Executive Officer and President. Corporate Managers and Enron each has the right
in its discretion to terminate its management consulting services agreement with
FirstWorld. Enron terminated its management services agreement upon its sale of
Series A and Series B common stock to Texas Pacific Group.
Network Equipment Sale
In November 1999 the Company agreed to sell approximately $3.4 million
worth of network equipment to Enron Leasing, an affiliate of Enron.
Sturm Equity Investment Agreement
On December 2, 1999, the Company entered into an Equity Investment
Agreement with Colorado Spectra 4, LLC, an affiliate of the Sturm Entities, for
a $50.0 million equity commitment. The Agreement allowed us to require that
Spectra 4 purchase up $50.0 million of Series B common stock priced at $7.50 per
share.
The agreement contained three dates on which we could require that Spectra
4 purchase the Series B common stock. These dates were: February 15, 2000, March
31, 2000 and the expiration date of the agreement. Additionally, if at any time
during the term of the agreement the amount of cash, cash equivalents and
marketable securities we held fell below $20.0 million, we would be deemed to
have automatically exercised $25.0 million of the commitment. Under the terms of
the agreement, we paid Spectra 4 a non-refundable $5.0 million fee for the
commitment in February 2000.
On February 7, 2000 we gave notice to Spectra 4 that our cash, cash
equivalents and marketable securities position had fallen below $20.0 million,
and on February 10, 2000, pursuant to this automatic trigger provision, we sold
3,333,333 shares of Series B common stock to Spectra 4 for $25.0 million and
paid the $5.0 million commitment fee as required by the agreement.
The Agreement expired on the closing of our initial public offering on
March 13, 2000.
Transfer of Securities by Enron to the Texas Pacific Group and Additional sale
of Common stock
The FirstWorld securities purchased by Enron were subsequently transferred
to various affiliates of Enron. On March 3, 2000, Enron transferred 8,236,083
shares of common stock and warrants to purchase additional 5,236,083 shares of
our common stock to affiliates of Texas Pacific Group. A portion of the warrants
transferred will not be exercisable until the occurrence of certain
contingencies.
In March 2000, the Company sold $50.0 million of its Series B Common Stock
to TPG FirstWorld I LLC, an affiliate of the entities which purchased the
securities previously held by Enron and its affiliates. This transaction closed
simultaneously with the closing of the Company's initial public offering of
common stock. The Series B Common Stock sold in this transaction was priced at
$15.81 per share, which is equal to the price paid by the public in our initial
public offering minus the underwriters' discount.
Legal Counsel of Latham & Watkins
John Stiska, who is a member of our Board, holds an of counsel position at
the law firm of Latham & Watkins. During 1999 Latham & Watkins provided legal
services to the Company.
31.
<PAGE>
Indemnity Agreements
The Company has entered into indemnity agreements with certain officers,
directors and employees which provide, among other things, that the Company will
indemnify such officer, director or employee, under the circumstances and to the
extent provided for therein, for expenses, damages, judgments, fines and
settlements he may be required to pay in actions or proceedings which he is or
may be made a party be reason of his position as a director, officer or other
agent of the Company, and otherwise to the full extent permitted under Delaware
law and the Company's Bylaws.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file with the SEC initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and holders of in excess of ten percent of any such class are required
by SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1999, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with, except that an
initial statement of beneficial ownership on Form 3 filed to report his
appointment as a member of the Board of Directors of the Company and the
securities owned by him was filed late.
Annual Report
The Annual Report of the Company for the fiscal year ended December 31,
1999 will be mailed to stockholders of record on or about May 3, 2000. 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 the Company's Annual
Report on Form 10-K and its amended Annual Report on Form 10-K 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., 8390 East Crescent
Parkway, Suite 300, Greenwood Village, Colorado 80111, Attention: Secretary.
Other Matters
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
Jeffrey L. Dykes, Esq.
Secretary
May 3, 2000
32.
<PAGE>
Exhibit A
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
FIRSTWORLD COMMUNICATIONS, INC.
FirstWorld Communications, Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware ("DGCL"), does hereby
certify that:
First: The name of the corporation is FirstWorld Communications, Inc.
Second: The date on which the original Certificate of Incorporation of the
corporation was filed with the Secretary of State of the State of Delaware is
February 23, 1998.
Third: The Board of Directors of the corporation, acting in accordance
with the provisions of Sections 141(f) and 242 of the DGCL, adopted a resolution
to amend Article Fourth, Section (a) to read in its entirety as follows:
"(a) This Corporation is authorized to issue two classes of shares,
designated `Common Stock' and `Preferred Stock.' The total number of shares
which this Corporation shall have the authority to issue is 510,000,000. The
number of shares of Common Stock authorized to be issued is 500,000,000, of
which 10,135,164 shall be designated Series A Common Stock and 489,864,836 shall
be designated Series B Common Stock. The number of shares of Preferred Stock
authorized to be issued is 10,000,000. The par value of each share of Common
Stock and of each share of Preferred Stock is $.0001."
Fourth: Thereafter, pursuant to a resolution by the Board of Directors,
this Certificate of Amendment was submitted to the stockholders of the
corporation for their approval in accordance with the provisions of Sections 222
and 242 of the DGCL. Accordingly, said proposed amendment has been duly adopted
in accordance with Section 242 of the DGCL.
In Witness Whereof, FirstWorld Communications, Inc. has caused this
Certificate to be signed by its Secretary this ______ day of June, 2000.
FirstWorld Communications, Inc.
By: ______________________________________
Jeffrey L. Dykes
Secretary
A-1
<PAGE>
Exhibit B
FIRSTWORLD COMMUNICATIONS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
Adopted December 22, 1999
Approved by the Stockholders on December 22, 1999
Effective Date: March 7, 2000
1. PURPOSE.
(a) The purpose of this 1999 Employee Stock Purchase Plan (the "Plan") is
to provide a means by which employees of FirstWorld Communications, Inc., a
Delaware corporation (the "Company"), and its Affiliates, as defined in
subparagraph 1(b), which are designated as provided in subparagraph 2(b), may be
given an opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent corporation
or subsidiary corporation of the Company, as those terms are defined in Sections
424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended
(the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of its
employees, to secure and retain the services of new employees, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company.
(d) The Company intends that the rights to purchase stock of the Company
granted under the Plan be considered options issued under an "employee stock
purchase plan" as that term is defined in Section 423(b) of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors (the "Board")
of the Company unless and until the Board delegates administration to a
committee as provided in subparagraph 2(c). Whether or not the Board has
delegated administration the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(i) To determine when and how rights to purchase stock of the
Company shall be granted and the provisions of each offering of such rights
(which need not be identical).
(ii) To designate from time to time which Affiliates of the Company
shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and rights granted under it,
and to establish, amend and revoke rules and regulations for its administration.
The Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan, in a manner and to the extent it shall deem necessary
or expedient to make the Plan fully effective.
(iv) To amend the Plan as provided in paragraph 13.
(v) Generally, to exercise such powers and to perform such acts as
the Board or the Committee deems necessary or expedient to promote the best
interests of the Company and its Affiliates and to carry out the intent that the
Plan be treated as an "employee stock purchase plan" within the meaning of
Section 423 of the Code.
B-1
<PAGE>
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 12 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to rights granted under
the Plan shall not exceed in the aggregate one million (1,000,000) shares of the
Company's common stock (the "Common Stock"). If any right granted under the
Plan shall for any reason terminate without having been exercised, the Common
Stock not purchased under such right shall again become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. GRANT OF RIGHTS; OFFERING.
(a) The Board or the Committee may from time to time grant or provide for
the grant of rights to purchase Common Stock of the Company under the Plan to
eligible employees (an "Offering") on a date or dates (the "Offering Date(s)")
selected by the Board or the Committee. Each Offering shall be in such form and
shall contain such terms and conditions as the Board or the Committee shall deem
appropriate, which shall comply with the requirements of Section 423(b)(5) of
the Code that all employees granted rights to purchase stock under the Plan
shall have the same rights and privileges. The terms and conditions of an
Offering shall be incorporated by reference into the Plan and treated as part of
the Plan. The provisions of separate Offerings need not be identical, but each
Offering shall include (through incorporation of the provisions of this Plan by
reference in the document comprising the Offering or otherwise) the period
during which the Offering shall be effective, which period shall not exceed
twenty-seven (27) months beginning with the Offering Date, and the substance of
the provisions contained in paragraphs 5 through 8, inclusive.
(b) If an employee has more than one right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder: (1) each agreement or notice delivered by that employee will be
deemed to apply to all of his or her rights under the Plan, and (2) a right with
a lower exercise price (or an earlier-granted right, if two rights have
identical exercise prices), will be exercised to the fullest possible extent
before a right with a higher exercise price (or a later-granted right, if two
rights have identical exercise prices) will be exercised.
5. ELIGIBILITY.
(a) Rights may be granted only to employees of the Company or, as the
Board or the Committee may designate as provided in subparagraph 2(b), to
employees of any Affiliate of the Company. Except as provided in subparagraph
5(b), an employee of the Company or any Affiliate shall not be eligible to be
granted rights under the Plan unless, on the Offering Date, such employee has
been in the employ of the Company or any Affiliate for such continuous period
preceding such grant as the Board or the Committee may require, but in no event
shall the required period of continuous employment be equal to or greater than
two (2) years. In addition, unless otherwise determined by the Board or the
Committee and set forth in the terms of the applicable Offering, no employee of
the Company or any Affiliate shall be eligible to be granted rights under the
Plan unless, on the Offering Date, such employee's customary employment with the
Company or such Affiliate is for at least twenty (20) hours per week and at
least five (5) months per calendar year.
(b) The Board or the Committee may provide that each person who, during
the course of an Offering, first becomes an eligible employee of the Company or
designated Affiliate will, on a date or dates specified in the Offering which
coincides with the day on which such person becomes an eligible employee or
occurs thereafter, receive a right under that Offering, which right shall
thereafter be deemed to be a part of that Offering. Such right shall have the
same characteristics as any rights originally granted under that Offering, as
described herein, except that:
B-2
<PAGE>
(i) the date on which such right is granted shall be the "Offering
Date" of such right for all purposes, including determination of the exercise
price of such right;
(ii) the period of the Offering with respect to such right shall
begin on its Offering Date and end coincident with the end of such Offering; and
(iii) the Board or the Committee may provide that if such person
first becomes an eligible employee within a specified period of time before the
end of the Offering, he or she will not receive any right under that Offering.
(c) No employee shall be eligible for the grant of any rights under the
Plan if, immediately after any such rights are granted, such employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of
this subparagraph 5(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any employee, and stock which such employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such employee.
(d) An eligible employee may be granted rights under the Plan only if such
rights, together with any other rights granted under "employee stock purchase
plans" of the Company and any Affiliates, as specified by Section 423(b)(8) of
the Code, do not permit such employee's rights to purchase stock of the Company
or any Affiliate to accrue at a rate which exceeds twenty-five thousand dollars
($25,000) of fair market value of such stock (determined at the time such rights
are granted) for each calendar year in which such rights are outstanding at any
time.
(e) Officers of the Company and any designated Affiliate shall be eligible
to participate in Offerings under the Plan, provided, however, that the Board or
the Committee may provide in an Offering that certain employees who are highly
compensated employees within the meaning of Section 423(b)(4)(D) of the Code
shall not be eligible to participate.
6. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each eligible employee, pursuant to an Offering
made under the Plan, shall be granted the right to purchase up to the number of
shares of Common Stock of the Company purchasable with a percentage designated
by the Board or the Committee not exceeding fifteen percent (15%) of such
employee's Earnings (as defined by the Board for each Offering) during the
period which begins on the Offering Date (or such later date as the Board or the
Committee determines for a particular Offering) and ends on the date stated in
the Offering, which date shall be no later than the end of the Offering. The
Board or the Committee shall establish one or more dates during an Offering (the
"Purchase Date(s)") on which rights granted under the Plan shall be exercised
and purchases of Common Stock carried out in accordance with such Offering.
(b) In connection with each Offering made under the Plan, the Board or the
Committee may specify a maximum number of shares that may be purchased by any
employee as well as a maximum aggregate number of shares that may be purchased
by all eligible employees pursuant to such Offering. In addition, in connection
with each Offering that contains more than one Purchase Date, the Board or the
Committee may specify a maximum aggregate number of shares which may be
purchased by all eligible employees on any given Purchase Date under the
Offering. If the aggregate purchase of shares upon exercise of rights granted
under the Offering would exceed any such maximum aggregate number, the Board or
the Committee shall make a pro rata allocation of the shares available in as
nearly a uniform manner as shall be practicable and as it shall deem to be
equitable.
(c) The purchase price of stock acquired pursuant to rights granted under
the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Purchase Date.
7. PARTICIPATION; WITHDRAWAL; TERMINATION.
B-3
<PAGE>
(a) An eligible employee may become a participant in the Plan pursuant to
an Offering by delivering a participation agreement (enrollment/change form) to
the Company within the time specified in the Offering, in such form as the
Company provides. Each such agreement shall authorize payroll deductions of up
to the maximum percentage specified by the Board or the Committee of such
employee's Earnings (as defined by the Board for each Offering) during the
Offering. The payroll deductions made for each participant shall be credited to
an account for such participant under the Plan and shall be deposited with the
general funds of the Company. A participant may reduce (including to zero) or
increase such payroll deductions, and an eligible employee may begin such
payroll deductions, after the beginning of any Offering only as provided for in
the Offering.
(b) At any time during an Offering, a participant may terminate his or her
payroll deductions under the Plan and withdraw from the Offering by delivering
to the Company a notice of withdrawal in such form as the Company provides.
Except during the 10 day period immediately preceding a Purchase Date, such
withdrawal may be elected at any time prior to the end of the Offering except as
provided by the Board or the Committee in the Offering. Upon such withdrawal
from the Offering by a participant, the Company shall distribute to such
participant all of his or her accumulated payroll deductions (reduced to the
extent, if any, such deductions have been used to acquire stock for the
participant) under the Offering, without interest, and such participant's right
to acquire Common Stock under that Offering shall be automatically terminated.
A participant's withdrawal from an Offering will have no effect upon such
participant's eligibility to participate in any other Offerings under the Plan
but such participant will be required to deliver a new participation agreement
in order to participate in subsequent Offerings under the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall terminate
immediately upon cessation of a participant's employment with the Company and
any designated Affiliate, for any reason, and the Company shall distribute to
such terminated employee all of his or her accumulated payroll deductions
(reduced to the extent, if any, such deductions have been used to acquire stock
for the terminated employee), under the Offering, without interest.
(d) Rights granted under the Plan shall not be transferable by a
participant other than by will or the laws of descent and distribution, or by a
beneficiary designation as provided in paragraph 14, and during a participant's
lifetime, shall be exercisable only by such participant.
8. EXERCISE.
(a) On each date specified therefor in the relevant Offering ("Purchase
Date"), each participant's accumulated payroll deductions will be applied to the
purchase of whole shares of stock of the Company, up to the maximum number of
shares permitted pursuant to the terms of the Plan and the applicable Offering,
at the purchase price specified in the Offering. Unless otherwise provided for
in the applicable Offering, no fractional shares shall be issued upon the
exercise of rights granted under the Plan. The amount, if any, of accumulated
payroll deductions remaining in each participant's account after the purchase of
shares which is less than the amount required to purchase one share of stock on
the final Purchase Date of an Offering shall be held in each such participant's
account for the purchase of shares under the next Offering under the Plan,
unless such participant withdraws from such next Offering, as provided in
subparagraph 7(b), or is no longer eligible to be granted rights under the Plan,
as provided in paragraph 5, in which case such amount shall be distributed to
the participant after such final Purchase Date, without interest. The amount,
if any, of accumulated payroll deductions remaining in any participant's account
after the purchase of shares which is equal to the amount required to purchase
whole shares of Common Stock on the final Purchase Date of an Offering shall be
distributed in full to the participant after such Purchase Date, without
interest.
(b) No rights granted under the Plan may be exercised to any extent unless
the shares to be issued upon such exercise under the Plan (including rights
granted thereunder) are covered by an effective registration statement pursuant
to the Securities Act of 1933, as amended (the "Securities Act") and the Plan is
in material compliance with all applicable state, foreign and other securities
and other laws applicable to the Plan. If on a Purchase Date in any Offering
hereunder the Plan is not so registered or in such compliance, no rights granted
under the Plan or any Offering shall be exercised on such Purchase Date, and the
Purchase Date shall be delayed until the Plan is subject to such an effective
registration statement and such compliance, except that the Purchase Date shall
not be delayed more than twelve (12) months and the Purchase Date shall in no
event be more than twenty-seven (27) months from the Offering Date. If on the
Purchase Date of any Offering hereunder, as delayed to the maximum extent
permissible, the Plan is not registered and in such compliance, no rights
granted under the Plan or any
B-4
<PAGE>
Offering shall be exercised then all payroll deductions accumulated during the
Offering (reduced to the extent, if any, such deductions have been used to
acquire stock) shall be distributed to the participants, without interest.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the rights granted under the Plan, the Company
shall at all times make reasonable efforts to keep available the number of
shares of stock required to satisfy such rights, provided that this section
shall not require the Company to take any action that would result in adverse
tax, accounting or financial consequences to the Company.
(b) The Company shall seek to obtain from each federal, state, foreign or
other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell shares of stock upon exercise of
the rights granted under the Plan. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such rights unless and until
such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock to participants pursuant to rights granted under
the Plan shall constitute general funds of the Company.
11. RIGHTS AS A STOCKHOLDER.
A participant shall not be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares subject to rights granted under
the Plan unless and until the participant's shares acquired upon exercise of
rights hereunder are recorded in the books of the Company (or its transfer
agent).
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject to
any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding rights will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding rights. Such adjustments shall be made by the Board or
the Committee, the determination of which shall be final, binding and
conclusive. (The conversion of any convertible securities of the Company shall
not be treated as a "transaction not involving the receipt of consideration by
the Company.")
(b) In the event of: (1) a dissolution or liquidation of the Company; (2)
a merger or consolidation in which the Company is not the surviving corporation;
(3) a reverse merger in which the Company is the surviving corporation but the
shares of Common Stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise; or (4) the acquisition by any person, entity or
group within the meaning of Section 13(d) or 14(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), or any comparable successor
provisions (excluding any employee benefit plan, or related trust, sponsored or
maintained by the Company or any Affiliate of the Company) of the beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act,
or comparable successor rule) of securities of the Company representing at least
fifty percent (50%) of the combined voting power entitled to vote in the
election of directors, then, as determined by the Board in its sole discretion
(i) any surviving or acquiring corporation may assume outstanding rights or
substitute similar rights for those under the Plan, (ii) such rights may
continue in full force and effect, or (iii) participants' accumulated payroll
deductions may be used to purchase Common Stock immediately prior to the
transaction described above and the participants' rights under the ongoing
Offering terminated.
13. AMENDMENT OF THE PLAN.
(a) The Board or the Committee at any time, and from time to time, may
amend the Plan. However, except as provided in paragraph 12 relating to
adjustments upon changes in stock, no amendment shall be effective
B-5
<PAGE>
unless approved by the stockholders of the Company within twelve (12) months
before or after the adoption of the amendment if such amendment requires
stockholder approval in order for the Plan to obtain employee stock purchase
plan treatment under Section 423 of the Code or to comply with the requirements
of Rule 16b-3 promulgated under the Exchange Act.
(b) The Board or the Committee may amend the Plan in any respect the Board
or the Committee deems necessary or advisable to provide eligible employees with
the maximum benefits provided or to be provided under the provisions of the Code
and the regulations promulgated thereunder relating to employee stock purchase
plans and/or to bring the Plan and/or rights granted under it into compliance
therewith.
(c) Rights and obligations under any rights granted before amendment of
the Plan shall not be altered or impaired by any amendment of the Plan, except
with the consent of the person to whom such rights were granted, or except as
necessary to comply with any laws or governmental regulations, or except as
necessary to ensure that the Plan and/or rights granted under the Plan comply
with the requirements of Section 423 of the Code.
14. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who is
to receive any shares and cash, if any, from the participant's account under the
Plan in the event of such participant's death subsequent to the end of an
Offering but prior to delivery to the participant of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death during an Offering.
(b) Such designation of beneficiary may be changed by the participant at
any time by written notice in the form prescribed by the Company. In the event
of the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such participant's death,
the Company shall deliver such shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its sole discretion, may deliver such shares and/or cash to the spouse or to
any one or more dependents or relatives of the participant, or if no spouse,
dependent or relative is known to the Company, then to such other person as the
Company may designate.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board or the Committee in its discretion, may suspend or terminate
the Plan at any time. No rights may be granted under the Plan while the Plan is
suspended or after it is terminated.
(b) Rights and obligations under any rights granted while the Plan is in
effect shall not be altered or impaired by suspension or termination of the
Plan, except as expressly provided in the Plan or with the consent of the person
to whom such rights were granted, or except as necessary to comply with any laws
or governmental regulation, or except as necessary to ensure that the Plan
and/or rights granted under the Plan comply with the requirements of Section 423
of the Code.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective upon the effective date of the initial public
offering of the Common Stock of the Company (the "Effective Date"), but no
rights granted under the Plan shall be exercised unless and until the Plan has
been approved by the stockholders of the Company within twelve (12) months
before or after the date the Plan is adopted by the Board, which date may be
prior to the Effective Date.
B-6
<PAGE>
EXHIBIT C
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).
C-1
<PAGE>
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 13,200,000. 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.
C-2
<PAGE>
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
C-3
<PAGE>
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.
C-4
<PAGE>
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
C-5
<PAGE>
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;
C-6
<PAGE>
(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.
C-7
<PAGE>
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.
C-8
<PAGE>
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.
C-9
<PAGE>
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.
C-10
<PAGE>
(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.
C-11
<PAGE>
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
C-12
<PAGE>
(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
C-13
<PAGE>
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
C-14
<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
C-15
<PAGE>
- ---------------------------------------
Company Number:
- ---------------------------------------
Control Number:
- ---------------------------------------
There are three ways to vote your proxy:
. Vote by Phone--toll free--1-800-240-6326
Use any touch-tone phone to vote your proxy 24 hours a day, 7 days
a week.
. You will be prompted to enter your 3-digit Company number and your 7 digit
control number which are located above.
Follow the simple instructions the Voice provides you.
. Vote by Internet-- http://www.eproxy.com/FWIS
--------------------------
Use the Internet to vote our proxy 24 hours a day, 7 days a week You will
be prompted to enter your 3-digit Company number and your 7 digit control
number which are located above to obtain your records and create an
electronic ballot.
. Vote by Mail
Mark, sign and date your proxy card and return it in the postage paid
envelope we've provided or return it to FirstWorld Communications, Inc.,
c/o Shareowner Services, PO Box 64873, St. Paul, MN 55164
If you vote by Phone or by Internet, please do not mail your proxy
FIRSTWORLD COMMUNICATIONS, INC.
ANNUAL MEETING OF STOCKHOLDERS - JUNE 12, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Sheldon S. Ohringer and Jeffery L. Dykes,
and 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 8:30
a.m. (MDT) on Monday, June 12, 2000 at the Denver Marriott Southeast, 6363 East
Hampden Avenue, Denver, Colorado 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 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
an amendment to FirstWorld's Certificate of Incorporation, FOR the adoption of
the 1999 Employee Stock Purchase Plan of FirstWorld Communications, Inc., FOR
the approval of an amendment of the FirstWorld Communications, Inc. 1999 Equity
Incentive Plan, and FOR the appointment of PricewaterhouseCoopers LLP an
FirstWorld's independent accountants.
[X] Please mark vote as in this example.
<TABLE>
<CAPTION>
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:
<S> <C> <C> <C>
[_] FOR all [_] WITHHOLD Nominees: Donald L. Sturm Sheldon S. Ohringer
nominees AUTHORITY to vote Thomas J. Barrack James O. Spitzenberger
listed to the for all nominees Melanie L. Sturm William S. Price
right (expect listed to the right John G. Donoghue
as indicated)
Directors to be elected by the holders of Series B common stock:
[_] FOR the [_] WITHHOLD Nominees: John C. Stiska
nominee AUTHORITY to vote
listed to the for all nominee
right (except listed to the right
as indicated)
Instruction: To withhold authority to vote for any individual nominee, write such nominee's name in the space provided below.
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2. Approval of the amendment to FirstWorld's Certificate of Incorporation [_] For [_] Against [_] Abstain
3. Approval of the adoption of the 1999 Employee Stock Purchase Plan of
FirstWorld Communications, Inc. [_] For [_] Against [_] Abstain
4. Approval of an amendment to the FirstWorld Communications, Inc. 1999
Equity Incentive Plan. [_] For [_] Against [_] Abstain
5. Approval of PricewaterhouseCoopers LLP as FirstWorld's Independent
accountants. [_] For [_] Against [_] Abstain
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 on Proxy. If held
in joint tenancy, all persons must sign. Trustees,
administrators, etc., should include title and authority.
Corporations should provide full name of corporation and
title of authorized officer signing the proxy.
</TABLE>
