<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
FirstWorld Communications, Inc.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(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>
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 12:00 noon EDT 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
12:00 midnight EDT 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>
Director
Name Age Position Since
- - ---- --- -------- ------------
<S> <C> <C> <C>
Donald L. Sturm(1).............. 68 Chairman of the Board January 1998
Sheldon S. Ohringer(1).......... 42 President, Chief Executive October 1998
Officer and Director
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
3
<PAGE>
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,
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
4
<PAGE>
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.
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, Korea First Bank 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 public companies, including Continental
Airlines, Inc., Beringer Wine Estates, Del Monte Foods, Denbury Resources and
numerous private companies. 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.
5
<PAGE>
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 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
6
<PAGE>
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 needs
as they arise, to take advantage of favorable opportunities and to respond to
a changing corporate environment.
The additional shares of Common Stock that would become available for
issuance if the proposal were adopted could also be used by the Company to
oppose a hostile takeover attempt or delay or prevent changes in control or
management of the Company. For example, without further stockholder approval,
the Board could adopt a "poison pill" which would, under certain circumstances
related to an acquisition of shares not approved by the Board of Directors,
give certain holders the right to acquire additional shares of Common Stock at
a low price, or the Board could strategically sell shares of Common Stock in a
private transaction to purchasers who would oppose a takeover or favor the
current Board. Although this proposal to increase the authorized Common Stock
has been prompted by business and financial considerations and not by the
threat of any hostile takeover attempt (nor is the Board currently aware of
any such attempts directed at the Company), nevertheless, stockholders should
be aware that approval of this proposal could facilitate future efforts by the
Company to deter or prevent changes in control of the Company, including
transactions in which the stockholders might otherwise receive a premium for
their shares over the current market prices.
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.
7
<PAGE>
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 (the "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 essential features of the Purchase Plan 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.
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.
8
<PAGE>
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.
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 10 days prior to the end of the applicable purchase
period.
9
<PAGE>
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 the Purchase Plan at any time and from time to time.
However, no amendment shall be effective unless approved by the stockholders
of the Company within 12 months before or after the adoption of the amendment
if such amendment requires stockholder approval in order for the Purchase 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
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 or
acquisition 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 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.
10
<PAGE>
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 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.
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, and
99,113 shares remained available for future grant (without giving effect to
the proposed 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 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.
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.
11
<PAGE>
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 securities) which may be issued upon exercise of options is currently
set at 5,000,000. The Company's stockholders, in this Proposal, are being
asked to approve an increase in this number by an additional 8,200,000 shares,
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 options may be either previously unissued
shares or treasury shares. If any option to acquire shares under the Incentive
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 partial exercise may again be
available for the granting of options. Furthermore, any shares subject to
options which are adjusted (as described in "General Terms of Awards Under the
Incentive Plan-Adjustments Upon Change in Capitalization") and which become
exercisable with respect to shares of stock of another corporation will be
considered canceled and may again be available for the granting of options.
Additionally shares of the Series B Common Stock which are delivered by the
optionee or withheld by the Company upon the exercise of any option under the
Incentive Plan, in payment of the exercise price of such option, may again be
available for the granting of options. No shares of the Series B 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.
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.
12
<PAGE>
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; provided
however, that options granted to consultants will be non-qualified stock
options ("NQSOs"). 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.
Subject to adjustment as described in "Adjustments Upon Change in
Capitalization" below, the maximum number of shares which may be subject to
options granted under the Incentive Plan to any individual in any fiscal year
of the Company shall not exceed 500,000 shares of Series B Common Stock (the
"Award Limit").
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 and SARs. Descriptions of the different types of options and SARs that
may be awarded under the Incentive Plan are set forth below.
Incentive Stock Options ("ISOs"). ISOs will be designed to comply with
applicable provisions of the Code and will be subject to certain restrictions
contained in the Code. Among such restrictions, ISOs must have an exercise
price not less than the Fair Market Value of a share of Series B Common Stock
on the date of grant, may only be granted to employees, must expire within a
specified period of time following the optionee's termination of employment,
and must be exercised within seven years after the date of grant; but may be
subsequently modified to disqualify them from treatment as ISOs. In the case
of an ISO granted to an individual who owns (or is deemed to own) at least 10%
of the total combined voting power of all classes of stock of the Company, the
Incentive Plan provides that the exercise price for such ISO must be at least
110% of the fair market value of a share of Series B Common Stock on the date
of grant and the ISO must expire upon the fifth anniversary of the date of its
grant.
13
<PAGE>
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.
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
14
<PAGE>
thereunder and the Award Limit 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.
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 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
15
<PAGE>
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 (as defined in the Incentive Plan) 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.
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.
16
<PAGE>
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.
17
<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.
18
<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 Beneficially Percent Beneficially Percent Voting
Owned of Class Owned of Class Owned of 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>
- - --------
* 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
19
<PAGE>
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.
20
<PAGE>
(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.
(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 Dr. 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.
21
<PAGE>
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 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
22
<PAGE>
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 of Colorado in 1987 and a B.A. degree in Economics from the
University of Alberta in 1985. He is a Certified Public Accountant.
23
<PAGE>
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 $100,000 for
services rendered in all capacities to us during 1999 (collectively, the
"Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation(1) Compensation
--------------------------------------- ------------
Twelve Securities
Name and Principal Months Other Annual Underlying
Position(s) Ended Salary ($) Bonus ($) Compensation ($) 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 Counsel 12/31/1998 -- -- -- --
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 $200,000 was paid on January 1, 2000.
(8) Dr. Jenkins became a FirstWorld employee on November 9, 1998.
(9) Mr. Dykes became a FirstWorld employee on January 4, 1999.
(10) Mr. Kramer became a FirstWorld employee on December 7, 1998.
24
<PAGE>
Option Grants During 1999
The following table sets forth certain information with respect to options
to purchase Series B common stock granted during the twelve-month period ended
December 31, 1999 to certain of our executive officers.
<TABLE>
<CAPTION>
Potential Realizable
% of Total Value at Assumed
Number of Options Annual Rates of Stock
Securities Granted to Exercise Price Appreciation
Underlying Employees Price per for Option Term
Options in Fiscal Share Expiration ----------------------
Name Granted (#) Year (%) ($/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.
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>
Number of
Securities Underlying Value of Unexercised
Shares Unexercised Options at In-the-Money Options
Acquired Value Fiscal Year End (#) at Fiscal Year End ($)
on Exercise Realized ------------------------- -------------------------
Name (#) ($) 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.
25
<PAGE>
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.
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.
26
<PAGE>
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.
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.
Dr. 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 S. 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.
27
<PAGE>
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.
28
<PAGE>
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
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)
29
<PAGE>
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
30
<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
31
<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
32
<PAGE>
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.
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
33
<PAGE>
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 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.
34
<PAGE>
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.
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.
35
<PAGE>
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 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.
_____________________________________
Jeffrey L. Dykes, Esq.
Secretary
May 3, 2000
36
<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 , 2000
Effective Date: March 8, 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 Series B 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-2
<PAGE>
(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:
(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
B-3
<PAGE>
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.
(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
B-4
<PAGE>
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
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
B-5
<PAGE>
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 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
B-6
<PAGE>
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-7
<PAGE>
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).
1.7. Code. "Code" shall mean the Internal Revenue Code of 1986, as amended.
1
<PAGE>
1.8. Committee. "Committee" shall mean the Compensation Committee of the
Board, or another committee of the Board, appointed as provided in Section
8.1.
1.9. Common Stock. "Common Stock" shall mean the Series B Common Stock,
$0.0001 par value per share, of the Company, and any equity security of the
Company issued or authorized to be issued in the future, but excluding any
preferred stock and any warrants, options or other rights to purchase Common
Stock.
1.10. Company. "Company" shall mean FirstWorld Communications, Inc., a
Delaware corporation.
1.11. Director. "Director" shall mean a member of the Board.
1.12. Disability. "Disability" shall mean, with respect to any Optionee, (i)
the suffering of any mental or physical illness, disability or incapacity that
shall in all material aspects preclude such Optionee from performing his or
her employment or consultant duties or (ii) the absence of such Optionee from
his or her employment or consultant duties by reason of any mental or physical
illness, disability or incapacity for a period of six (6) months during any
twelve (12) month period; provided, however, in either case, that such
illness, disability or incapacity shall be reasonably determined to be of a
permanent nature by the Committee.
1.13. Employee. "Employee" shall mean any officer or other employee (as
defined in accordance with Section 3401(c) of the Code) of the Company, or of
any corporation which is a Subsidiary.
1.14. Exchange Act. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
1.15. Fair Market Value. "Fair Market Value" of a share of Common Stock as
of a given date shall be: (i) the closing price of a share of Common Stock on
the principal exchange on which shares of Common Stock are then trading, if
any (or as reported on any composite index which includes such principal
exchange), on the trading day previous to such date, or if shares were not
traded on the trading day previous to such date, then on the next preceding
date on which a trade occurred; or (ii) if Common Stock is not traded on an
exchange but is quoted on NASDAQ or a successor quotation system, the mean
between the closing representative bid and asked prices for the Common Stock
on the trading day previous to such date as reported by NASDAQ or such
successor quotation system; or (iii) if Common Stock is not publicly traded on
an exchange and not quoted on NASDAQ or a successor quotation system, the Fair
Market Value of a share of Common Stock shall be established by the Board
acting in good faith, giving predominate weight to the earnings history, book
value and prospects of the Company in light of market and industry conditions
generally.
1.16. Holder. "Holder" shall mean a person who has been granted or awarded
an Award.
1.17. Incentive Stock Option. "Incentive Stock Option" shall mean an option
which conforms to the applicable provisions of Section 422 of the Code and
which is designated as an Incentive Stock Option by the Committee.
1.18. Independent Director. "Independent Director" shall mean a member of
the Board who is not an Employee of the Company.
1.19. Non-Qualified Stock Option. "Non-Qualified Stock Option" shall mean an
Option which is not designated as an Incentive Stock Option by the Committee.
1.20. Option. "Option" shall mean a stock option granted under Article III
of this Plan. An Option granted under this Plan shall, as determined by the
Committee, be either a Non-Qualified Stock Option or an Incentive Stock
Option; provided, however, that Options granted to consultants shall be Non-
Qualified Stock Options.
1.21. Option Shares. "Option Shares" shall mean shares of Common Stock
acquired by Optionees through the exercise of Options under this Plan.
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
3
<PAGE>
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
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 8,200,000. 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.
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
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;
(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
6
<PAGE>
(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.
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;
7
<PAGE>
(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.
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.
8
<PAGE>
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.
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
9
<PAGE>
(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. 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.
(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
10
<PAGE>
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.
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
11
<PAGE>
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
(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
12
<PAGE>
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 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,
13
<PAGE>
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
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 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.
* * *
14
<PAGE>
I hereby certify that the foregoing Plan was duly adopted by the Board of
Directors of FirstWorld Communications, Inc. on March 8, 1999 and was further
amended by the Board of Directors on December 22, 1999.
Executed on this 1st day of May, 2000.
/s/ Jeffrey L. Dykes
_____________________________________
Secretary
15
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
ANNUAL MEETING OF STOCKHOLDERS
June 12, 2000
8:30 a.m.
DENVER MARRIOTT SOUTHEAST
6363 East Hampden Avenue
Denver, Colorado
FIRSTWORLD COMMUNICATIONS, INC. proxy
- - --------------------------------------------------------------------------------
This proxy is solicited on behalf of the Board of Directors.
The undersigned hereby appoints Sheldon S. Ohringer and Jeffrey 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
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 meetings.
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 as
FirstWorld's independent accountants.
See reverse for voting instructions.
<PAGE>
There are three ways to vote your Proxy.
. Your telephone or internet vote Authorizes the named Proxies COMPANY #
to vote your shares in the same manner as if you marked, CONTROL #
signed and returned your proxy card.
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 ballet.
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
ServicesSM, P.O. Box 64873, St. Paul, MN 55164
If you vote by Phone or by Internet, please do not mail your Proxy Card
The Board of Directors Recommends a Vote FOR Items 1, 2, 3, 4 and 5.
1. Election of directors:
<TABLE>
<CAPTION>
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>
01 Donald L. Sturm 05 Sheldon S. Ohringer vote for vote withheld
02 Thomas J. Barrack 06 James O. Spitzenberger all nominees from all nominees
03 Melanie L. Sturm 07 William S. Price (except as marked)
04 John G. Donoghue
<CAPTION>
Please fold here
Directors to be elected by the holders of Series B common Stock:
08 John C. Stiska
(Instructions: To withhold authority to vote for any indicated nominee,
write the number(s) of the nominee(s) in the box provided to the right.)
<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
</TABLE>
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.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
Address change? n Mark box, indicate changes below:
Date
DO NOT PRINT IN THIS AREA
FOR ADDRESS ONLY
Signature(s) in Box
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 or corporation and title of
authorized officer signing the proxy.
<PAGE>
FIRSTWORLD COMMUNICATIONS, INC.
ANNUAL MEETING OF STOCKHOLDERS
June 12, 2000
8:30 a.m.
DENVER MARRIOTT SOUTHEAST
6363 East Hampden Avenue
Denver, Colorado
FIRSTWORLD COMMUNICATIONS, INC. proxy
- - --------------------------------------------------------------------------------
This proxy is solicited on behalf of the Board of Directors.
The undersigned hereby appoints Sheldon S. Ohringer and Jeffrey 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
Series A, 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 meetings.
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 as
FirstWorld's independent accountants.
See reverse for voting instructions.
<PAGE>
There are three ways to vote your Proxy.
. Your telephone or internet vote Authorizes the named COMPANY #
Proxies to vote your shares in the same manner as if CONTROL #
you marked, signed and returned your proxy card.
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 ballet.
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
ServicesSM, P.O. Box 64873, St. Paul, MN 55164
If you vote by Phone or by Internet, please do not mail your Proxy Card
The Board of Directors Recommends a Vote FOR Items 1, 2, 3, 4 and 5.
1. Election of directors:
<TABLE>
<CAPTION>
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>
01 Donald L. Sturm 05 Sheldon S. Ohringer [_] Vote FOR [_] Vote WITHHELD
02 Thomas J. Barrack 06 James O. Spitzenberger all nominees from all nominees
03 Melanie L. Sturm 07 William S. Price (except as marked)
04 John G. Donoghue
Please fold here
<CAPTION>
(Instructions: To withhold authority to vote for any indicated nominee,
write the number(s) of the nominee(s) in the box provided to the right.)
<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
</TABLE>
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.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
Address change? [_] Mark box, indicate changes below:
Date
DO NOT PRINT IN THIS AREA
FOR ADDRESS ONLY
Signature(s) in Box
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 or corporation and title of
authorized officer signing the proxy.
