UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
(Rule 13d-101)
Under the Securities Exchange Act of 1934
(Amendment No. 4)
ESPRIT TELECOM GROUP PLC
(Name of Issuer)
American Depositary Shares representing Ordinary Shares, nominal value 1p each
(Title of Class of Securities)
29665W104
(CUSIP Number)
Walt Anderson
2000 L Street, N.W. Suite 200
Washington, D.C. 20036
(202) 467-1189
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
with a copy to:
Richard Hoffman, Esq.
Williams & Connolly
725 Twelfth Street, N.W.
Washington, D.C. 20005
202-434-5000
November 13, 1998
(Dates of Events Which Require Filing of This Statement)
The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which would
alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not
be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
SCHEDULE 13D/A
CUSIP No. 29665W104 Page 1 of 6
1. NAMES OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Gold & Appel Transfer, S.A.
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
3. SEC USE ONLY
4. SOURCE OF FUNDS* WC
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) or 2(e)
[ ]
6. CITIZENSHIP OR PLACE OF ORGANIZATION British Virgin Islands
7. SOLE VOTING POWER 32,128,898.02
NUMBER OF Ordinary Shares
SHARES
BENEFICIALLY 8. SHARED VOTING POWER 0
OWNED BY
EACH 9. SOLE DISPOSITIVE POWER 0
REPORTING
PERSON WITH: 10. SHARED DISPOSITIVE POWER 0
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
32,128,898.02
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES [ ]
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 26.20%
14. TYPE OF REPORTING PERSON* CO
<PAGE>
SCHEDULE 13D/A
CUSIP No. 29665W104 Page 2 of 6
1. NAMES OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Walt Anderson
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
3. SEC USE ONLY
4. SOURCE OF FUNDS* WC
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) or 2(e)
[ ]
6. CITIZENSHIP OR PLACE OF ORGANIZATION United States of America
7. SOLE VOTING POWER 162,615
NUMBER OF Ordinary Shares
SHARES
BENEFICIALLY 8. SHARED VOTING POWER 0
OWNED BY
EACH 9. SOLE DISPOSITIVE POWER 32,291,513.02
REPORTING
PERSON WITH: 10. SHARED DISPOSITIVE POWER 0
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
32,291,513.02
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES [ ]
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 26.33%
14. TYPE OF REPORTING PERSON* IN
<PAGE>
This Amendment No. 4 ("Amendment No. 4") to Schedule 13D filed
by Gold & Appel Transfer, S.A., a British Virgin Islands corporation ("Gold &
Appel"), and Walt Anderson, a natural person and a U.S. citizen ("Mr.
Anderson"), as joint filers, with respect to the American Depository Shares
representing Ordinary Shares, nominal value 1p per share (the "Ordinary
Shares"), of Esprit Telecom Group plc, a public limited company incorporated
under the laws of England and Wales (the "Issuer").
This Amendment No. 4 amends and/or supplements, as indicated,
Items 4, 6 and 7 of the Schedule 13D filed by Gold & Appel and Mr. Anderson as
joint filers on January 27, 1998 (the "Statement"), the Amendment No. 1 filed as
of March 30, 1998, Amendment No. 2 filed on July 10, 1998 and Amendment No. 3
filed on October 12, 1998. All capitalized terms used and not defined herein
shall have the meanings ascribed to them in the Statement.
Item 4. Purpose of Transaction.
Item 4 of the Schedule 13D is hereby amended to add the following:
Extraordinary General Meeting
In connection with the extraordinary general meeting of the Company's
shareholders to be held on November 23, 1998, Walt Anderson and Gold & Appel
Transfer, S.A. have retained D.F. King and Co., Inc., a proxy solicitation firm.
On November 13, 1998, Walt Anderson and Gold & Appel Transfer, S.A sent
shareholders of the Company a letter asking them to vote in favor of the
resolution proposed by Walt Anderson and Gold & Appel Transfer, S.A to remove
Messrs. Oertle, McMonigall and Shorthouse as Directors, and Sir Robin Biggam as
Director and Chairman of the Company and against the resolutions proposed by
Ventures, Apax Funds Nominees Limited and Apax for the removal of Walt Anderson.
The text of this letter is set forth as Exhibit 99.9 and is incorporated herein
by reference.
Gold & Appel, a British Virgin Islands corporation, and Walt Anderson,
a natural person and U.S. citizen, acquired the Gold & Appel Shares (as defined
in Item 5 of Amendment No. 3 to Schedule 13D filed by Gold & Appel and Anderson
as joint filers) for investment purposes. Mr. Anderson, on behalf of Gold &
Appel and himself, may determine to purchase additional securities of the Issuer
in market transactions or otherwise, or to sell some or all of the Gold & Appel
Shares at any at any time in private or market transactions, depending among
other things on the outcome of the Extraordinary General Meeting of Esprit
Telecom, an evaluation of the Issuer's business, prospectus and financial
conditions, the market for the Ordinary Shares, other opportunities available to
Gold & Appel and Mr. Anderson, general economic conditions, money and stock
market conditions, and other further developments.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect
to Securities of the Issuer.
Item 6 of the Schedule 13D is hereby amended to add the following:
The information set forth in Item 4 above is incorporated herein by
reference.
Item 7. Material to be Filed as Exhibits.
Item 7 of the Schedule 13D is hereby amended to add the following:
Exhibit 7.1 Joint Filing Agreement with respect to the joint filing of
this Statement
Exhibit 99.9 Letter to Shareholders, dated November 13, 1998, from Walt
Anderson and Gold & Appel Transfer, S.A.
<PAGE>
SIGNATURES
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
Date: November 13, 1998
Gold & Appel Transfer, S.A.,
a British Virgin Islands corporation
By: /s/ Walt Anderson
-------------------------------
Walt Anderson, Attorney-in-Fact for
Gold & Appel Transfer, S.A.
By: /s/ Walt Anderson
-------------------------------
Walt Anderson
Exhibit 7.1
Joint Filing Agreement
The undersigned hereby agree that the Statement on Schedule 13D to
which this Joint Filing Agreement is attached as Exhibit 7.1 is filed on behalf
of each of us.
Date: November 13, 1998
Gold & Appel Transfer, S.A.,
a British Virgin Islands corporation
By: /s/ Walt Anderson
-------------------------------
Walt Anderson, Attorney-in-Fact for
Gold & Appel Transfer, S.A.
By: /s/ Walt Anderson
-------------------------------
Walt Anderson
Exhibit 99.9
WALT ANDERSON
3050 K Street, NW, Suite 250
WASHINGTON, D.C. 20007
United States of America
Dear Shareholder,
I am writing on behalf of myself, Gold & Appel Transfer S.A. and Entree
International, Inc., together representing 26.5% of the equity of Espirit
Telecom Group, Plc. We urge you to support the resolutions to remove David
Oertle, John McMonigall, Dominic Shorthouse and Sir Robin Biggam as directors of
the Company and, in addition, to remove Mr. Oertle as CEO of the Company.
In short, my complaint against Mr. Oertle, Mr. McMonigall and Mr. Shorthouse
(whom I shall refer to as "the Trio", for the sake of convenience) is that they
have acted in a covert manner, inconsistent with their duties to your Company,
so as to undermine and usurp the authority of your Board of Directors. This,
taken in Mr. Oertle's case with my concerns about the effect of his management
style upon the culture of Espirit (which culture plays a significant part in its
ongoing success), leads me to conclude that they should no longer be entrusted
with running Espirit and should be removed from the Board and, in the case of
Mr. Oertle, from his executive duties.
As to Sir Robin, I make no complaint about his conduct. My concerns are (1) that
I was invalidly removed from my position as Chairman and replaced by Sir Robin
in a Boardroom coup orchestrated by the Trio and (2) that Sir Robin, who has no
previous experience leading a telecommunications company and has never been
involved in a fast growing, entrepreneurial company, is simply not the right
person to Chair our Company at a critical phase in its life.
<PAGE>
I do not want to burden you with excessive detail but it is important that you
understand what led me, as the founder of our Company, to reach my current
views. I can, of course, expand upon the historical details at the EGM. I also
want to stress that what is set out here is only what I have been able to
discover since 24th September 1998. I have not had an opportunity to justify a
vote in favor of the resolutions we have proposed.
The details of my argument are set forth in the following appendices:
(1) The breaches of authority by the Trio.
(2) Questions which the Trio should be required to answer.
(3) Mr. Oertle's damaging management style.
(4) The position of Sir Robin Biggam.
The Trio have engaged in a pattern of surreptitious behavior that concealed
material information from the full Board of Directors of your company and that
significantly exceeded the authority granted to them acting as the Company's
Remuneration Committee. Such conduct is simply inconsistent with the duty of
directors who should be acting in the best interests of all of the company's
shareholders.
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<PAGE>
These actions alone should be enough to justify the removal of the Trio from
directorial and executive responsibility in this or any other public company.
But the Trio has not only asked you to allow them to continue in office in
office, but has proposed more: They ask you to vote to remove me from the Board.
You must ask why? According to their solicitation materials, because of my style
in conducting board meetings as Chairman and because I am alleged to have
interfered with management's authority. They provide no details or other
evidence. They only asked for my removal when I insisted on pursuing my
investigation into their alleged fiduciary violations.
In addressing these charges, a bit of background is relevant. In 1997, after
being CEO of our company for six years, I concluded that it was time to bring in
successor management to take over day-to-day operation of the company. I
initiated the executive search that resulted in the identification of Mr. Oertle
as a suitable candidate to run our company. I encouraged him to take the job and
was pleased when he did so. Everything in his background indicated to me that he
should be a successful CEO. It was with the greatest dismay that I have observed
over the past year a management style that is, in my experience, antithetical to
the success of a young and growing company like ours. I have summarized this in
Appendix 3. At least as important, I urge you to focus on the implications of
the Trio's resolution to remove me as a member of the Board of Directors. If
that resolution succeeds, our company will have lost the services of the
company's founder and the only member of the Board who has proven track record
of building from the ground up, successful, telecommunications companies. My
record in building private telecommunications companies speaks for itself and is
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<PAGE>
set out in my Statement to you dated 29th October 1998. Indeed, it was I who saw
the need for, and the opportunity waiting for people who could build, private
telecommunications companies in Europe. That is why I founded Espirit. I also
know, from my experience in building telecommunications companies in the United
States, that telecommunications technology is evolving with astonishing
rapidity, that any young company attempting to compete with established giants
in the market faces daunting challenges and that entrepreneurial vision and
flexibility are often the key to success. I have deep concerns that a Board
managed solely by professional investment advisors and a career manager whose
business life has been spent in large, established companies is not the right
team, by themselves, to steer our company through the challenging months ahead.
I am the founder of Espirit. The shareholders whom I represent (holding 26.5% of
the equity of the Company) have a very real financial interest that drives our
determination that the future prosperity of the Company should not be
jeopardized.
The Trio have had an opportunity to explain their conduct but they have done so
only in the barest of detail. Look at the fundamental questions which remain
unanswered (Appendix 2) and ask yourself whether you are content to continue to
entrust your investment to these individuals. They have shown no respect for the
structures and procedures by which the Company should be run and I fear that Mr.
Oertle now regards himself as the only decision-maker.
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<PAGE>
I believe that it is in the best interests of the Company to resolve to
terminate any involvement between the Company and Mr. Oertle, Mr. McMonigall and
Mr. Shorthouse. For the reasons described above, I consider that they have acted
in a way that is totally inappropriate for the directors of any company. Their
actions should not be tolerated. They should not be given the opportunity to
remain involved in Espirit where they will be able to take similar (and perhaps
more damaging) steps again.
I have an exceptional track record for adding value to the companies with which
I have been involved. Esprit Telecom, under my leadership, has been very
successful. I believe this is only the beginning and that Esprit can continue to
grow successfully. I am very proud of the fact that this success has been
attained without sacrificing integrity or principles.
I urge you to vote in favor of the resolutions to remove the Trio and Sir Robin
Biggam and against the resolution to remove me as a director of the company.
Yours very truly,
Walt Anderson
13th November 1998
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<PAGE>
APPENDIX 1
BREACHES OF AUTHORITY OF THE TRIO
1. Under the constitution of Esprit, the Board of the Company is given the
power to delegate certain functions to committees. On 31st January 1997 the
Remuneration Committee was established:
"for the purposes of and with the power to determine, approve
and administer the ESOS [(i.e. those employee share option
schemes that the Company was then considering established)]."
2. The membership of the Remuneration Committee was subsequently altered at a
meeting on 4th August 1997. Thereafter, it consisted of the members of the
Trio, plus David Reibel, the corporate counsel. The powers of the committee
were not extended at this time and accordingly remained as specified above.
3. On 26th February 1998, Mr. Oertle, Mr. McMonigall and Mr. Shorthouse met as
the Remuneration Committee and without any reference to the Board purported
to consider various matters and reach various decisions which were beyond
their authority and which should have been referred to the Board. The two
topics considered were, first, my position as Chairman and, second, the
Company's executive share option scheme.
The plot to remove me as Chairman
4. In my position as Chairman and with my detailed knowledge of Company
affairs, I was at least able to exercise some control over Mr. Oertle. Mr.
Oertle presented to Mr. McMonigall and Mr. Shorthouse an ultimatum: either
<PAGE>
I should cease to be Chairman or he would resign. Mr. Oertle had never
voiced to me or to the Board any concerns about the performance of my
duties or my conduct generally. If it were a resignation issues (as he
claims it to be), I would have expected him to tell me or the Board. He did
not and for reasons, which they have not explained, neither did Mr.
McMonigall and Mr. Shorthouse. Instead, they decided that I should be
replaced as Chairman by a non-executive Chairman brought in from outside
(i.e. more of a figurehead).
5. The Trio has claimed to rely on advice purportedly given by Lehman Brothers
that, if the Company were to be listed on the London Stock Exchange,
consideration ought to be given to appointing a new Chairman. I would ask
you to disregard this as justifying the actions of the Trio. The advice of
Lehman Brothers has never been disclosed: certainly, it was not given to
the Board, nor does it appear to have been formalized. I suspect that it
was nothing more than an informal opinion from one individual. In any
event, no decision has been taken by the Board in relation to a London
listing (indeed, it was not even discussed by the Board until June).
6. Having taken the decision to remove me, the Trio then decided to engage
search agents to find a non-executive director who might be appointed
Chairman. This was done purportedly on behalf of the Board of the Company,
although it was done without any authority and without ever disclosing it
to the Board. It appears now to be accepted that they had no authority to
so resolve. The minutes of the meeting were not disclosed until seven
months later, by which time, the Trio's plans had been advanced
considerably.
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<PAGE>
7. As a consequence of the decisions taken by the Trio on 26th February,
search agents were appointed and, in due course, they identified a possible
candidate for non-executive director and Chairman. That candidate was Sir
Robin Biggam. Even at this stage, nothing was said to the Board, Mr. Oertle
took it upon itself to interview Sir Robin and ascertained that he would
accept the post if offered it. On September 3, 1998, again without notice
to the full Board, the Remuneration Committee agreed on a compensation
package of 50,000 pounds ($80,000) for the new Chairman and indicated that
he had agreed.
8. In September, I became aware of the plan to remove me as Chairman but not
of the proposal to appoint Sir Robin Biggam. Only after investigating the
matter further did I discover the covert and unauthorized activities of the
Trio. I raised my concerns regarding the conduct of the Trio at a Board
meeting on 24th September 1998. It was decided that Rowe & Maw, the
Company's solicitors, should conduct an investigation. Their report was
presented on 2nd October. Among other matters, they concluded that Mr.
Oertle, Mr. McMonigall and Mr. Shorthouse had acted in breach of their
fiduciary duty to the Company in engaging search consultants as described
above. Notwithstanding that, I do not believe that the report was
sufficiently thorough and it certainly cannot be relied upon to exonerate
the Trio. There are a great many important questions left unanswered. I
have set these out in Appendix 2. I invite you to put these questions to
the Trio. I have sought a fuller investigation but the Trio and Sir Robin
Biggam constitute a majority of the Board and so I am not optimistic that
my request will ever be acted upon.
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<PAGE>
9. The first that the full Board knew of the Trio's plans to appoint Sir Robin
Biggam as Chairman was at the Board meeting on 5th October when, without
notice beforehand, Mr. McMonigall and Mr. Shorthouse offered resolutions to
remove me as Chairman, to appoint Sir Robin as non-executive director and
to appoint him as Chairman. As you will see from Appendix 4, I dispute that
these resolutions were effectively carried. Such behavior is, I believe,
inexcusable.
The Management Share Option Plan
10. Also on 26th February 1998, and again without reference to the Board, the
Remuneration Committee purported to establish a new share option scheme for
the benefit of the senior management of Esprit. This was termed the
Management Share Option Plan ("MSOP").
11. As I have described above, the powers of the Remuneration Committee were
limited to the power to "determine, approve and administer the ESOS". The
"ESOS" was defined to mean the employees share option schemes under
consideration by the Company on 31st January 1997. The MSOP was not such a
scheme.
12. After their investigation, Rowe & Maw concluded that the MSOP was a
Sub-Plan of the ESOS Global Plan and was accordingly something that the
Remuneration Committee had power to establish. My solicitors have advised
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<PAGE>
me that this conclusion is wrong and have written to Rowe & Maw
accordingly. Perhaps symptomatic of the deficiencies in the Rowe & Maw
report concerning this issue (and others) is the fact that other powers of
the committee are not even accurately quoted. The reasoning in the report
proceeds, erroneously, from this misquotation.
13. On 3rd September 1998, the Remuneration Committee held a further meeting
without reference to the Board and purported to resolve, among other
things, to introduce change of control provisions into the terms of the
options granted under the MSOP. I consider that the financial impact of
this change may be as high as US$20 million but (after several ignored
requests ) I have only just received the information that will enable me to
perform the detailed calculations.
14. Copies of my solicitor's response to Rowe & Maw can be obtained from me on
request. To date no reply has been received from Rowe & Maw.
The Nortel contract
15. On 7th October 1998, the Company's Chief Operations Officer entered into a
contract with Nortel Networks. This contract, which is worth in excess of
$30 million, is plainly of great significance to Esprit. Despite this,
other than having approved the business case for this type of contract, the
Board was not informed of the negotiations leading to the contract with
Nortel and was not given any opportunity to discuss the contract before it
was concluded. I understand that the contract was entered into on the
say-so of Mr. Oertle alone.
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<PAGE>
16. Coming so soon after my discovery of the actions of the Trio which I have
outlined above, this matter is plainly of great concern. It suggests that
the Board is now being routinely bypassed by Mr. Oertle.
17. Similar contracts have in the past been reviewed by the full Board of
Esprit. Mr. Oertle appears to consider that he need not even have discussed
the contract with the other Board members. I first became aware that the
contract had been concluded from a press release to that effect.
18. Even more concerning are the actions that have been taken since the Nortel
contract was concluded. Once I had learned about the contract, I asked to
see the documents relevant to this contract as a matter of urgency. The
Board (led by Mr. Oertle) resolved that I should not be allowed access to
the documents, at least until the matter had been investigated by Mr.
Merritt (this refusal to allow me access to the company's documents
resulted in my making an application to the court - this has now been
resolved). For reasons which he has not explained, Mr. Oertle did not see
fit, even at the Board meeting at which I raised my concerns regarding the
Nortel contract itself, to disclose that negotiations were still going on
with Nortel concerning the financing of the contract.
19. Conclusion
I am convinced that the actions taken by the Trio were taken in full knowledge
that they were acting beyond their authority and beyond the mandate of the
Remuneration Committee. They conceived a plan and decided to pursue it without
reference to the full Board of the Company. Mr. Merritt, Mr. Potter and I were
all excluded from any decision making or discussion in relation to this plan.
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<PAGE>
In concealing from your Board of Directors their actions until I obtained a copy
of the relevant minutes, the Trio have brought about the very situation which
they have sought to lay at my door, namely a "breakdown in relationships" at
Board level. Had Mr. Oertle's alleged concerns been raised openly, a
constructive bilateral solution might have been found without the matter having
to come before you at an EGM. As it is, there has been no consideration of and
investigation by the Board of Mr. Oertle's alleged concerns and no consideration
by the Board of Lehman Brothers' advice (if any). What was capable of being
resolved by consensus, had it been dealt with openly, has been turned into
confrontation.
I believe the Trio have shown an unwillingness to act in an open and accountable
manner, which you as a shareholder should demand of any director. I urge you to
share my view that the covert actions practiced by the Trio were inconsistent
with their acting in good faith (whatever their view as to the best interests of
the company) and to support the resolutions to remove them from the Board.
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<PAGE>
APPENDIX 2
QUESTIONS FOR THE TRIO
The Trio have yet to give a satisfactory explanation of their conduct. Questions
outstanding include the following:
o What precisely were Mr. Oertle's alleged concerns about me? These have
never been articulated. I note that no cause was stated in support of the
motion to remove me as Chairman.
o Why did Mr. Oertle not tell me of his alleged concerns?
o Why did Mr. Oertle not tell the Board's of his alleged concerns about me?
o Once they knew of concerns, why did Mr. McMonigall and Mr. Shorthouse not
bring them to the attention of the Board or to me?
o Why did Mr. McMonigall and Mr. Shorthouse not consider it appropriate to
investigate any concerns to see whether they were founded?
o What did Mr. Oertle say to lead Mr. McMonigall and Mr. Shorthouse to
believe that he would resign if I did not cease to be Chairman?
o Why was an ultimatum of this importance not brought to the attention of the
Board?
o In what circumstances was Lehman Brothers' "indication" given? Was formal
advice sought? Why was an opinion of this importance not recorded in
writing? Who at Lehman Brothers gave this advice to whom at the Company?
Who paid for this advice? Why was the advice not passed on to the Board?
<PAGE>
o Why did Mr. McMonigall and Mr. Shorthouse believe that they, as distinct
from the Board or the body of shareholders, had to choose between retaining
Mr. Oertle and me?
o Why was this decision not put to the Board and why did Mr. McMonigall and
Mr. Shorthouse believe that they could act without the authority of the
Board?
o Why did the Trio act without authority from the Board in establishing the
MSOP? Why was their decision to establish the scheme not disclosed to the
Board?
o Why did the Trio introduce change of control provisions into the MSOP
options at the meeting on 3rd September without authority from the Board?
I invite you to ask the Trio to answer these questions at the EGM.
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<PAGE>
APPENDIX 3
MR. OERTLE'S DAMAGING MANAGEMENT STYLE
Esprit was one of the first companies to bring competitive
telecommunications services to the European Union countries. In 1992, when we
began, few individuals in Europe were trained to operate a company like Esprit.
Esprit worked hard to find the right people and then offered additional training
and experience in the industry. We now have an experienced, well-trained group
of employees and managers.
We attempted to create a culture similar to that found in Silicon
Valley, California - open communication and hard work. Allowing employees to
take initiative and giving employee stock options to everyone working at the
company from the receptionist to the top managers has helped to foster the
culture.
Now each new start-up in our industry that needs employees would like
to recruit individuals with Esprit experience. Virtually anyone working at
Esprit can find another job in days (and probably at a higher pay level). Part
of what has kept employees loyal to the company is the stock option plan as well
as the fact that we have always endeavored to treat all of our employees with
respect.
FUTURE SUCCESS BUILT ON "HUMAN CAPITAL"
The value of all the network assets in Esprit is insignificant when
compared to the value of the individuals who work for the company. These
employee/partners are critical for the success of the company. We are not a
traditional overstaffed, inefficient dinosaur monopoly. Each employee needs to
be motivated and effective to keep the company moving forward at a rapid pace.
Open communication about both the successes and failures of the company is
important in order to allow everyone to understand their role in the overall
plans of the company.
<PAGE>
MR. OERTLE'S MANAGEMENT STYLE
David Oertle, in my view, does not trust or respect the employees of
Esprit. His management style is management by "force". He insists on
concentrating all decision making in himself.
Many Esprit employees have complained to me and others about what they
perceive to be an "Ivory Tower" approach adopted by the company in the past
year. Too many good people have left. Many more will leave if Mr.
Oertle is allowed to have full control over the company.
What this means is that Mr. Oertle lacks vision and creativity for the
future of the Company. Tight control over all decision making is not a
substitute for the imagination, creativity and plain grit that are required in a
highly dynamic business like ours. The founders of Esprit (including me) have
given Mr. Oertle an "inventory" of ideas and goals and he is reaching the end of
these. I have seen no signs that he is capable of generating on his own the new
ideas and approaches that our business will require in the future if it is to
achieve the success of which it is capable. It is also unlikely that Mr. Oertle
can recruit a "visionary" for the company as he recruited a new Chairman for the
Board.
In my experience, successful competitive telecommunications companies
are all characterized by a very close, even intimate, working association
between employees and top managers of the company. In any rapidly evolving
business, top management must keep abreast of changes that are occurring, on a
daily basis, in the marketplace and in the technology. Mr. Oertle's management
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<PAGE>
style is to distance himself from most of the employees of the company. He does
not appear to what to hear what is going on in the real world from the people
who actually work there. He appears to avoid contact with the employees, vendors
and customers who make Esprit possible. In the long run, I believe that this
management style has already harmed the Company and will do even more damage in
the future.
RECENT INCIDENTS
To give specific examples of the general concerns stated above, I cite
the following:
The recent secret meetings and the unauthorized decisions initiated by
Mr. Oertle show, in my view, a lack of concern for honor, truth and candor. They
also show a lack of concern, even bordering on contempt, for the shareholder
values in Esprit Telecom.
The failure of Mr. Oertle to inform the Board about the Nortel contract
until it was, for all intents and purposes, a fait accompli is illustrative both
of his contempt for the normal processes of corporate governance and his
secretive, excessively controlling management style. Major matters such as the
Nortel contract simply must be brought before the Board in a timely and open
fashion.
Mr. Oertle has cancelled the Esprit Annual Event where all employees
met over a weekend to meet their counterparts in other countries. The monthly
newsletter has been cancelled and the free flow of information between
departments has been stopped.
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<PAGE>
Under Mr. Oertle, there has been a marked decline at Esprit in
sensitivity to employees, in the diversity of our workplace, and in an awareness
of social concerns that I believe are hallmarks of successful companies in the
new technological world.
I would also point out that Mr. Oertle's presence is in no sense
critical to the success of Esprit. The management team I assembled has led
Esprit from its inception and the business was performing extremely well in all
aspects both before and since Mr. Oertle's arrival. In my judgment, his
departure would not cause any disruption in the business and would most likely
allow the company to avoid problems I see looming on the horizon.
FUTURE DAMAGE TO ESPRIT TELECOM
Mr. Oertle has demonstrated beyond doubt that he will exclude members
of the Board and other officers of the Company from material matters when it is
convenient. He has shown a lack of concern for the rules of governance of
Esprit. He has also shown a lack of understanding of the corporate culture that
has made Esprit a very special company.
His attempted coup d'etat against me shows that Mr. Oertle is willing
to risk the future of your company in a power play that has no apparent purpose
other than to remove me, the person most responsible for the success of the
company, from any influence in it.
His efforts to hire a new chairman who has no entrepreneurial business
experience and no experience in the competitive telecommunications business is
clear proof that Mr. Oertle wants to silence any voice on the Board that might
question his strategy, management style or capacity to run your company.
-4-
<PAGE>
Esprit Telecom is still a small company compared to our major
competitors (France Tel, BT, Telefonico de Espana, etc.). Esprit needs to have
every bit of creativity, knowledge and experience it can gather to be able to
grow rapidly in a very difficult environment. Mr. Oertle's decisions simply do
not make sense and cannot be justified. Esprit needs vision, creativity and
character to go forward, not ruthlessness and secrecy.
-5-
<PAGE>
APPENDIX 4
THE POSITION OF SIR ROBIN BIGGAM
The appointment of a new Chairman in my place was an integral part of the plan
hatched by the Trio on 26th February. The steps which led to Sir Robin Biggam's
purported appointment on 5th October were taken without consulting or informing
the Board. The engagement of search agents, the identification of Sir Robin and
his interview with Mr. Oertle were all concealed from the Board.
As I have stated in my personal Statements to you dated 29th October 1998, I am
advised that the resolution to remove me as chairman and the subsequent
resolution to elect Sir Robin Biggam in my place are invalid and a breach of the
Company's articles and its contract with me. This is not the forum in which to
analyze the legal position but, if you believe that it would be useful, I can do
so at the EGM.
When the matter was finally brought before the Board, it was a fait accompli.
All that was before the meeting was a one-page curriculum vitae. Mr. Oertle then
spent a minute or two explaining why, in his view, Sir Robin should be Chairman.
It was not suggested that other Board members should interview Sir Robin. The
views of Lehman Brothers (who, it has been said, had views on the type of
Chairman who would be acceptable to the London Stock Market) were not presented
to the Board. The process by which your Board purported to select a Chairman
who, it was hoped by the Trio, would lead it to a London Stock market listing
took no more than three minutes.
<PAGE>
Sir Robin Biggam lacks any experience with rapidly growing,
entrepreneurial companies. It is a very different thing to work for a large
defense contractor whose business deals almost solely with government contracts
(British Aerospace and Fairey Industries, where Sir Robin worked) than to build
a company in a truly competitive market.
Moreover, Sir Robin has no experience whatever in the
telecommunications field. Many of the issues that come before the Board of
Esprit are technical or strategic and it is impossible to see how someone with
Sir Robin's background, however accomplished he may be in his own field of
expertise, can be of any real assistance in evaluating such proposals.
It cannot be stressed too much that our company, competing with the
likes of BT, France Tel and other giants, requires at the highest levels,
including especially the Board, all of the vision, creativity and expertise in
telecommunications technology that it can acquire.
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